Determining the Suitability in Special Situations
Is LTC Insurance Suitable for the Wealthy?
A few people are wealthy enough to payout of their own pockets for all the long-term care they are likely to need and still have plenty of money left. Is LTCI suitable for them? Every situation is different, but there are good reasons for wealthy persons to buy an LTCI policy.
· When a person decides to pay for his own care, he is taking on an uncapped liability. That is, the amount he may have to pay is unpredictable and potentially very large, making financial planning difficult. By buying insurance coverage, he can convert that unpredictable expense into a regular, budgetable premium payment.
· A wealthy person may be able to pay a very large amount for long-term care and still have substantial financial resources. But he nevertheless will have spent assets that could have been left to others. When insurance is paying for most of a person's care, he does not have to worry that he is steadily depleting assets he might have passed on to heirs or charities. Also, family members are not frustrated by seeing expected inheritances dwindle, and family harmony is better maintained.
· In some cases, long-term care providers prefer insured patients to those who self-finance. Providers prefer the certainty of payment that insurance represents – and those with a LTCI policy may gain easier access to highly-desired nursing homes or other care facilities.
Of course, a person can compromise on the question of long-term care insurance -- that is, she can purchase a policy designed to cover a significant portion, but not all, of her potential long-term care expenses and plan to pay the rest out of her income and assets.
The Suitability of Replacing an LTCI Policy
There has been concern in the industry that agents might inappropriately encourage individuals who already have long-term care coverage to drop an existing policy and replace it with one that the agent is selling. While a new policy can be an improvement over a client's existing coverage, there are important considerations that the agent and the client need to take into account. It may not be in the client's best interests to replace his existing coverage with another product, even if that product offers important advantages and attractive features. And it is seldom appropriate for an agent to sell a policy with fewer benefits than a client's current coverage. Some states significantly limit the amount of commissions that can be paid on a replacement sale in an effort to discourage agents from selling replacement coverage.
Here are some questions consumers should consider before replacing coverage:
· How long ago did you buy the policy you now have? LTCI policies have improved a great deal in recent years, so as a general rule, a relatively new policy is more likely than an older policy to provide good coverage. Older policies often have numerous exclusions and restrictions that seriously limit the coverage and protection they provide. An old policy with limiting provisions like prior hospitalization requirements, conditional renewability, or exclusions for Alzheimer's disease provides little protection to the insured. On the other hand, while some existing policies might not be the best, they offer reasonable and fair protection for the premium. It may not make sense to replace such coverage even if the new policy being considered offers some additional advantages.
· How much older are you today than when you bought your existing policy? Since premium rates are based on the insured's age when he buys the coverage, there is an advantage to buying LTCI while young-one can "lock in" a low premium based on a young issue age. This advantage would be lost if the insured replaced coverage with another policy when he was much older, as his new premium would be based on a much older issue age. The consumer needs to consider the value of the existing coverage relative to the premium. Is the better coverage of a new policy worth the higher premium?
· Are you still insurable? A client who may not be insurable based on his current health should certainly retain his existing coverage, even if another policy offers improvements. If he would not be approved for the new coverage, he obviously will gain nothing in switching, and he stands to lose quite a lot.
If a consumer decides that it is in his best interests to replace his existing coverage, he should be aware of the following:
· An insured should never drop his existing coverage until he is notified that his application for the replacement policy is approved.
· The agent will need to complete a state-required replacement form and turn it in along with the application.
· The client also receives a replacement notice that he completes and retains.
In the application for a federally tax-qualified LTCI policy, the insurer is required to obtain information about an applicant's existing coverage and his plans to replace it with new coverage. If the client checks "Yes" to the question "Do you intend to replace the above or any other long-term care, medical, or health insurance with this coverage," he is provided with a replacement notice.