What Should I Do with My Traditional Long-Term Care Insurance Policy?
You or a family member may have a traditional long-term care insurance (LTCi) policy in force that you might not know much about other than how much it costs each year. LTCi is insurance that in case of long-term disability pays for custodial care in a facility like assisted living or nursing home and sometimes also home healthcare. If so, you may have wondered whether it makes sense to keep this policy especially if it seems premiums constantly go up and/or the benefits provided wouldn’t go far to covering such bills. While every situation is different and ultimately you should review your traditional long-term care policy with someone like us who specializes in insurance before making any changes, there are some general things you should consider.
First, never cancel or reduce existing LTC insurance until another LTC income source is secured. You must qualify for insurance – you can’t assume you will be approved. Just because you qualified for traditional LTCi in the past doesn’t mean you still do. Age and health are factors in underwriting which is the process by which the insurance company assesses the risk of a potential customer. Solutions you don’t qualify for – as awesome as they may be on paper – may as well not exist. This is why Red Feather Financial submits anonymous pre-underwriting inquiries with our client’s health information to determine whether he/she is likely to be approved for a particular recommendation.
Second, if cancellation is inevitable, only cancel under certain situations in order to preserve some benefits equal to the amount of premiums you paid in. Most traditional LTCi policies have provisions to protect consumers when premium hikes are announced as long as these are exercised within so many days of such an announcement. Make sure you read all correspondence from your insurance company so that you do not miss any important announcements and deadlines that could impact the cost of your policy.
Third, there may be good reasons NOT to cancel your traditional LTCi. You may have features in your current policy that are no longer available on the market or for which you would no longer qualify. While it is true that insurance carriers have been steadily leaving the long-term care market and no longer sell policies to new customers, their existing policies have to be maintained and you or a family member could have such a policy with potentially valuable features. Such features include:
• Return of premium – The ability to have some or all of the premium you paid returned to you under certain circumstances.
• Lifetime benefits – Benefits payable for your entire lifetime. Most plans now only offer limited duration policies of 2 to 5 years.
• Fixed level premiums – These are premiums that are fixed and guaranteed never to increase. Generally not an option in the current LTCi market.
• Restoration clause – This is a clause that allows your benefit pool to be restored if you become disabled and then recover. Upon restoration the amount available for your long term care is the same maximum you had before your disability.
Bottom line: Chances are we would recommend that you keep what you currently have in some form but consider supplementing it especially if your current policy does not have lifetime benefits or some of the other features we listed above. There is also another way to find out. You can always bring us a copy of your long-term care insurance policy for a complimentary review and our recommendations regarding your plan.
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