Long term care insurance: The premium catch

Consider this scenario.

You are getting older, and are concerned about the costs of nursing homes and long term care.  So, you decide to get expensive long term care insurance to protect your family from these costs.  The policy will pay some of the cost of long term care if you develop cognitive or physical disability.  All you have to do is keep making payments on the policy until you have a need for services.

Make sure you make the payments.  If you don’t, your policy gets cancelled, you lose all the money you put into premiums, and you get nothing when you need the services you thought you were paying for.

But wait, there is a catch.  One of the first problems that happens in persons who are developing the very cognitive problems that lead to the need for long term care services is trouble managing finances.  One of the first signs that someone needs their long term care insurance is that they can’t keep track of bills, forget to make payments, and make bad financial decisions.

Guess what?  Since you were having memory problems, you forgot to pay your long term care insurance premium.  Since you missed payments, the insurance company will claim your policy is lapsed.

Ain’t that a nice deal for the insurer!  The very fact that you have developed a need for their services becomes an excuse to keep all your premiums and never pay you a dime.

In a compelling post that will make your blood boil with anger, Paula Span describes such a horrendous situation on the New Old Age blog.

A Virginia couple, David and Anne Pirron, diligently planned for their needs by purchasing a long term care policy from John Hancock.  Over 10 years, they paid $50,000 to John Hancock.  But then they developed cognitive problems.  These cognitive problems should have triggered payment from Hancock for long term care services.  But, because of their cognitive problems, they forgot to pay their premiums.  So, instead, Hancock cancelled their policy, paid them nothing, and kept the Pirron’s premiums.

The irony is that if the Pirron’s had filed a claim when they were developing memory problems, Hancock probably would have had to pay up.  But like most people developing these type of problems, it took them time to ask for the help they needed.  So, instead, Hancock used their need for help as a way to get out of paying.

A good deal for the insurers, but an awful deal for those who think they are paying to protect themselves and their families.

Ken Covinsky is a professor of medicine, University of California, San Francisco who blogs at GeriPal.

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