The Application Process and Underwriting of an Individual Long Term Care Policy

State insurance laws require that all individual policies (life, health, long term care – all of them) be fully and medically underwritten. This means the insurance company must verify, through any legal means, the applicant’s medical history, lifestyle, and potential for cognitive impairment prior to issuing the policy. In other words, the company must make a serious attempt to determine an insurance risk before it issues a policy. This is for the protection of both parties – so that both the insurance company and the insured know going into the contract exactly where they stand.

Once this process is complete, an insurance company cannot refuse to pay a claim based on a condition that did not exist at the time of application. The underwriting process does allow an insurance company to refuse to cover someone who poses a significant risk for future claims, to exclude coverage for a specific condition, or to increase the premium because of a perceived increased risk.

Insurance companies are protected from fraud by being able to deny claims at any time if an applicant intentionally withheld information that would have affected whether the policy would have been issued. For example, if the applicant KNOWS he has cancer and denies it on the application AND the insurance company can prove that the applicant knew it and INTENTIONALLY withheld the information so that he could get insurance, then the insurance company can cancel the policy and deny the claims even years after the policy was issued. If, however, the applicant failed to disclose information that would have significantly affected the issuance of the policy, but the insurance company could not prove that it was done with intent to deceive, the insurance company can only deny a claim based on this misrepresentation during the first two years the policy is in force. After that, the company cannot use unintentional misrepresentation to deny a claim.

Insurance companies often rely on medical exams and current health to issue a life or health insurance policy, but they rely on medical records and a history of past medical conditions to issue a long term care insurance policy. Long term care companies may also require a personal or a phone interview by someone who is not an agent, possibly a nurse. In this interview the company will be looking at lifestyles, activities and hobbies, and other pursuits that might indicate whether you may be partially disabled and beginning to lose the ability to care for yourself. The independent interview also helps to balance the information from an agent who may be biased by the desire to sell a policy. Long term care companies are especially concerned about short-term memory problems, since cognitive impairment is a key issue with long term care insurance.

Because general health and cognitive abilities tend to decline with age, you should not wait to purchase long term care insurance until your health begins to decline, causing your premium to be higher, or declines to the point that you are no longer eligible for long term care insurance.

Many states now mandate that long term care insurance companies disclose, in writing, any rate increases for the class of policy you are applying for, along with details of the rate increases. If a company shows significant increases on a given policy over the years, look for another company with a history of fewer or no increases. Some insurance companies solve this disclosure requirement by discontinuing the sale of one policy and replacing it with a new policy with a few new features, but also higher premiums. The insurance company can then honestly say that it has never raised rates on a given policy. This process insures that the costs of long term care insurance go up over time but you can protect yourself from the increases by buying now. If you wait, you may be buying a new, slightly altered but more expensive version of the current policy.

Case Studies: Application Process and Underwriting of an Individual Long Term Care Policy

Case Study 1: Honest Disclosure vs. Intentional Misrepresentation

John, a 60-year-old individual, applied for a long term care insurance policy. During the application process, he disclosed all relevant medical information, including a previous heart condition. However, after a few years of coverage, John suffered a stroke, and the insurance company denied his claim, alleging that he intentionally withheld information about his heart condition. The case delves into the importance of honest disclosure and the consequences of intentional misrepresentation during the underwriting process.

Case Study 2: Cognitive Impairment Assessment

Susan, a 65-year-old applicant, underwent the underwriting process for a long term care policy. The insurance company conducted a detailed cognitive impairment assessment to gauge her ability to care for herself. Despite no immediate signs of cognitive decline, the assessment revealed certain lifestyle factors that indicated a potential risk for cognitive impairment in the future. The case sheds light on how long term care companies assess cognitive abilities during underwriting.

Case Study 3: Disclosure of Rate Increases

James, a 55-year-old individual, researched long term care insurance policies in a state that mandates disclosure of rate increases. He compared policies from various companies and discovered significant rate hikes on certain policies over the years. This led him to choose a policy from a company with a track record of fewer or no rate increases. The case emphasizes the importance of understanding and considering rate increase disclosures while selecting long term care insurance.