No insurer may offer a long-term care insurance policy unless the insurer also offers to the policyholder the option to purchase a policy that provides for benefit levels to increase with benefit maximums or reasonable durations which are meaningful to account for reasonably anticipated increases in the costs of long-term services covered by the policy. Insurers must offer to each policyholder, at the time of purchase, the option to purchase a policy with an inflation protection feature no less favorable than one of the following:
1. Increases benefit levels annually in a manner so that the increases are compounded annually at a rate not less than five percent (5%). However, if the insured individual shall reject the inflation protection offer as provided for in this section, the insurer may offer other or alternate forms of inflation protection;
2 .Guarantees the insured individual the right to periodically increase benefit levels without providing evidence of insurability or health status so long as the option for the previous period has not been declined. The amount of additional benefit shall be no less than the difference between the existing policy benefit and that benefit compounded annually at a rate of at least five percent (5%) for the period beginning with the purchase of the existing benefit and extended until the year in which the offer is made; or
3. Covers a specific percentage of actual or reasonable charges and does not include a maximum specified indemnity amount of limit.
Where the policy is issued to a group, the required offer shall be made to the group policyholder; except, if the policy is issued to a group (defined in regulations), other than to a continuing care retirement community, the offering shall be made to each proposed certificate holder.
This offer shall not be required of life insurance policies or riders containing accelerated long-term care benefits.121
The following information must be included in or with the Outline of Coverage:
Inflation protection as provided in the regulations must be included in a long-term care insurance policy unless an insurer obtains a rejection of inflation protection signed by the policyholder.
The rejection must be considered part of the application and shall state:
I have reviewed the Outline of Coverage and the graphs that compare the benefits and premiums of this policy with and without inflation protection. Specifically, I have reviewed Plans __________ and I reject inflation protection.
The insurer may use a reasonable hypothetical or a graphic demonstration for the purposes of the disclosures.123
Rather exhaustive studies conducted by AARP and others have revealed interesting data concerning the Inflation Protection in LTCI policies, and have put some old saws to rest, namely the concern by many agents that since the cost of this protection was relatively high, the insured would forgo more meaningful protection——such as a more realistic daily benefit—but this does not seem to be the case very often.
Some of their interesting findings are:
With these findings and various caveats, the survey concluded that
F Given the historical trends in long-term care costs, the insurance policy designs that individuals purchase, and the projected trends in use of institutional, home, and community-based care services, a 5 percent compound inflation rider is likely adequate to finance the future long-term care costs of most policyholders: more than 80 percent of the costs of care will be covered by such policies.
However, this conclusion depends on the continued shift in service use away from nursing home care and toward assisted living and home and community-based alternatives. Even in the context of the rider, considerable cost exposure may remain for those entering nursing homes, whereas those using home and community-based care risk overinsurance. Finally, to the extent that individuals purchase initially low daily benefit amounts, even with an inflation rider, it will be difficult to “catch up” and minimize out-of-pocket expenses.
Individuals accessing home and community-based care as well as assisted living care will have the lowest out-of-pocket payments, whereas those entering nursing homes will have the highest--up to 30 percent of the daily costs of care. Even so, given historical increases in costs and the declining use of nursing home care, to purchase a higher rate inflation rider (higher than 5 percent), would result in significant overinsurance and would therefore be inefficient from a consumer welfare perspective.
The purchase of an inflation rider makes the most sense for young buyers. Even in periods characterized by modest rates of inflation, a 5 percent compound rider is warranted. Self-insuring for the inflation risk may make sense only for older purchasers (age 70 and over). The extent of risk aversion influences the perceived value of the rider and will therefore partially determine whether the rider is purchased. Although insurers can take a number of steps to help make the protection more affordable, risk pooling to cover future price increases is still the most efficient means to prepare for the contingency.
In recent years, life insurance policies have been introduced with long-term care benefits available under certain situations (spelled out in the policy), and wherein the insured can receive benefits if he meets the criteria, such amount and criteria varying by insurance. The benefits range from a monthly benefit to a lump sum benefit, and may equal the total amount of cash value at that time, or may be a function of the face amount.
Life insurance policies are used as viaticals in some situations, in which case the policyholder sells the policy benefits to a viatical company, who, then, owns the policy at the time of the death of the policyholder.
With the various types of benefits available, it was necessary to create certain regulations for these situations.
Delaware requires that at the time of policy delivery, a policy summary shall be delivered for an individual life insurance policy which provides long-term care benefits within the policy or by rider. In the case of direct response solicitations, the insurer shall deliver the policy summary upon the applicant's request, but regardless of request shall make delivery no later than at the time of policy delivery. In addition to complying with all applicable requirements, the summary shall also include:
(1) An explanation of how the long-term care benefit interacts with other components of the policy, including deductions from death benefits;
(2) An illustration of the amount of benefits, the length of benefit and the guaranteed lifetime benefits, if any, for each covered person;
(3) Any exclusions, reductions and limitations on benefits of long-term care; and
(4) If applicable to the policy type, the summary must include a disclosure of the effects of exercising other rights under the policy, a disclosure of guarantee related to long-term care costs of insurance charges and current and projected maximum lifetime benefits.
Any time a long-term care benefit, funded through a life insurance vehicle by the acceleration of the death benefit, is in benefit payment status, a monthly report must be provided to the policyholder. Such report shall include:
(1) Any long-term care benefits paid out during the month;
(2) An explanation of any changes in the policy, e.g., death benefits or cash values, due to long-term care benefits being paid out; and
(3) The amount of long-term care benefits existing or remaining.
Any policy or rider advertised, marketed or offered as long-term care or nursing home insurance shall comply with this chapter.125
With regard to life insurance policies which provide an accelerated benefit for long-term care, a disclosure statement is required at the time of application for the policy or rider and at the time the accelerated benefit payment request is submitted that receipt of these accelerated benefits may be taxable, and that assistance should be sought from a personal tax advisor. The disclosure statement shall be prominently displayed on the first page of the policy or rider and any other related documents. This rule shall not apply to qualified long-term care insurance contracts.126
Life Insurance policies that accelerate benefits for long-term care shall comply with this section if the policy being replaced is a long-term care insurance policy. If the policy being replaced is a life insurance policy, the insurer shall comply with the usual replacement requirements. If a life insurance policy that accelerates benefits for long-term care is replaced by another such policy, the replacing insurer shall comply with both the long-term care and the life insurance replacement requirements.
STUDY QUESTIONS
1. In determining the “proper” or “recommended” benefit period, one statistic to keep in mind is
A. 67% of all LTCI policies never pay a cent in benefits.
B. that nearly 90% of all people over age 65 who enter a nursing home stay less than 5 years.
C. more people are admitted to long-term care facilities than die each year.
D. agents make more money off commissions than do real estate brokers.
2. No long Term Care Insurance policy may be cancelled, non-renewed or otherwise terminated
A. on the grounds of age or the deterioration of the mental or physical health of the insured individual or certificate holder.
B. on the grounds that there has not been proper or timely premium payments.
C. unless the agent has given written permission.
D. if the issuing insurer has its home office out of state.
3. Be cautious about policies that define their benefit periods as a one-time maximum period because
A. this is an open-ended policy so there is no limit on maximum benefits.
B. this means the insured can receive policy benefits only one time.
C. this means that they are always tax-qualified and so they are expensive.
D. that means that benefits will always be taxed as ordinary income.
4. A condition for which medical advice or treatment was recommended by or received from a provider of health care services within 6 months preceding the effective date of coverage of an insured person, pertains to
A. a durable power of attorney trigger.
B. the incontestable clause.
C. minor ailments, such as the flu or a cold.
D. preexisting conditions in a policy.
5. War-related injuries, self-inflicted injuries, or injuries as a result of the commission of a crime, are
A. covered under the non-qualified LTCI policies.
B. specifically covered under the Partnership Program.
C. exclusions in an LTCI policy.
D. automatically forwarded to a special-risk pool.
6. A long-term care policy must provide that the insured is entitled to a grace period of
A. at least 90 days.
B. not less than 30 days
C. one week.
D. a period not less than 180 days.
7. The applicant has the right to designate at least one person who is to receive the notice of termination, in addition to the insured, such person is referred to as the
A. Secondary Addressee.
B. Substitute Insured.
C. Obligee.
D. Trustee.
8. If a policy is canceled due to nonpayment of premium, the policyholder shall be entitled to have the policy reinstated if, within a period of not less than 5 months after the date of cancellation, the policyholder or any secondary addressee designated demonstrates that the failure to pay the premium when due was
A. failure of the Social Security check to arrive.
B. bankruptcy.
C. laziness.
D. unintentional and due to the cognitive impairment or loss of functional capacity of the policyholder.
9. An individual LTCI policyholder has the right to return the policy within 30 days after its delivery and to have the premium refunded if, after examination of the policy,
A. the benefits were not what were represented only.
B. the policyholder is not satisfied for any reason.
C. it is obvious that there was some sort of age, sex or racial discrimination.
D. the agent makes a minimum of three personal calls to satisfy the reasons for non-acceptance.
10. Under Delaware regulations, inflation protection in an LTCI policy must be not less favorable than three specific requirements, one of which is
A. a provision that increases benefits annually at a rate of not less than 5 percent, compounded annually
B. a provision that equals benefits to equal the Consumer Price Index.
C. a provision that increases benefits annually at a rate of not less than 5 percent annually.
D. the benefits must equal the highest benefit average among the top three insurers in that state that sell LTCI policies.
ANSWERS TO STUDY QUESTIONS
1B 2A 3B 4D 5C 6B 7A 8D 9B 10A