How The Pandemic Is Changing Long-Term Care Insurance

The Covid-19 pandemic likely had a significant impact on long-term care insurance (LTCI), though most of the effects won’t be known for a while yet.

The pandemic appeared to increase interest in and purchases of LTCI. It’s too early for the data to be available, but anecdotal reports from insurers and agents indicates that the pandemic increased inquiries about and purchases of different types of LTCI.

The widespread effects of the pandemic made more people aware of the potential they might need LTC at some point. The pandemic also made more people realize that the need for LTC can arise suddenly and much earlier in life than they realized.

The increased interest in LTCI is consistent with reports that people became more concerned about estate planning during the pandemic.

The pandemic also taught insurers and agents to stress that LTCI is not “nursing home insurance.” A widespread misunderstanding about LTC in general and LTCI has been the assumption that the care primarily is delivered in a nursing home or an assisted living residence. In fact, the majority of LTCI claims paid by insurers now are for home care.

After reports that one-third of Covid-19 deaths were of nursing home residents and that long-term care facility residents were subject to forced isolation during the pandemic, many people emphasize that they want to receive any care they need in their homes for as long as possible. They want to create a financial structure that will help pay for LTC at home. Though LTCI has paid for home care for many years, many potential purchasers didn’t realize that until recently.

Most LTCI policies pay for LTC delivered in almost any location. The standard provision triggers benefits when the insured is diagnosed as having a cognitive impairment or needing assistance with at least two of the six activities of daily living. It doesn’t matter where the care is received. The ability to pay for care received at home makes LTCI attractive to more people.

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A negative effect of the pandemic on LTCI is that it is more difficult to qualify for LTCI. Insurers reportedly are declining more applications for several reasons.

In-person medical exams are required for more applicants. Previously, in-person medical exams for LTCI applicants weren’t common. The underwriting process typically involved a review of a questionnaire and some medical records. A telephone interview also was common. Now, it’s more likely that an in-person medical exam will be required when the paperwork or telephone interview raise any questions.

More insurers are lowering the age limit at which they’ll issue policies. Also, the list of pre-existing conditions that will disqualify an applicant is lengthening at many insurers.

Insurers are more likely to be concerned about applicants who reside in areas of the country with high rates of Covid-19 infections or who have traveled to certain countries in the recent past. These applicants could be denied coverage, or the effective date of the coverage could be postponed until after a waiting period that makes the insurer comfortable.

Those interested in LTCI continue to move away from traditional LTCI and toward the hybrid policies. The hybrids are annuities or life insurance contracts with LTC benefits.

Traditional LTCI sales declined sharply after the financial crisis. Many issuers of LTCI policies left the market, and other insurers raised premiums substantially on existing policyholders. New policies have carried higher premiums and less coverage than policies issued before the financial crisis.

The hybrid policies guarantee no increase in premiums. Many are paid with one lump sum premium deposit.

The hybrid policies also make it easier for the insured to recover most or all of the premium deposited with the insurer if the insured needs the money before needing LTC.

One of the more attractive features of the hybrid policies is they don’t have the use-it-or-lose-it characteristic of traditional LTCI. When the purchaser of traditional LTCI passes away after making few or no claims against the policy, the heirs of the policyholder receive nothing from the policy. The only benefit the insured received from the premiums paid was the comfort of knowing the coverage was there if needed.

The hybrid policies, on the other hand, provide something for beneficiaries when the insured didn’t exhaust the LTC coverage. The amount available to the beneficiaries will depend on the policy purchased but usually is at least full recovery of the premium deposit if no claims were made against the policy. The insured is guaranteed that the beneficiaries will receive some benefit from the policy if the insured doesn’t claim substantial LTC benefits.

These factors are why sales of hybrid LTCI increased substantially in recent years while sales of traditional LTCI continue to dwindle.

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