Archive for February, 2011

Rate Classes. Is “Preferred” always preferred?

February 22, 2011

Not always.  Rate classes vary widely among insurance companies.  Here are a few long term care insurance examples:

1. The best (lowest premium) rate class used by both John Hancock and Mutual of Omaha is indeed “Preferred”.  Second best is “Select”.  Third and fourth best are, respectfully “Class I” and “Class II”.

2. Genworth, Med America, and State Farm all only have two rate classes…”Preferred” (best) and “Standard” (second best).

3. Mass Mutual’s (Massachusetts Mutual Life Insurance Co.) best rate class is “Ultra Preferred”.  Second best is “Select Preferred” and “Preferred” is only third best.

So what does all this rate class mumbo-jumbo mean to a consumer?  It means that the consumer is going to be confused.  Could this be intentional?…just saying.  In my practice, I don’t use terms like “Preferred”, “Standard” and “Select”.  I instead translate them into “Best Class”, “Second Best Class” and so on. 

Your actual medical history determines your rate class.  Rate class in turn determines the policy premium (cost) for a given age and benefit package. 

These distinctions are only important when comparing proposals from different companies.  The real question is: Are the proposals all based upon the rate class you are likely to get?  If not, someone is manipulating numbers to artificially make one proposal look better than another.  Or they only know about one company and are guessing about the others.  At the basic level, a MassMutual “Preferred” (third best class) proposal should not be compared with a Genworth “Preferred” (best class).  You will be looking at a distortion of your policy cost.  Someone who will qualify for “Preferred” with Genworth will likely qualify for “Ultra Preferred” with MassMutual.

The insurance person you are working with should have a good idea of what rate class you will actually qualify for with each insurance company (assuming you have been candid about your medical history).  Else he or she will not know what your policy will likely cost.  This knowledge can only come from years of experience with long term care insurance…and a willingness to call relevant insurance companies directly when in doubt.

A Lower-Cost Long Term Care Insurance Policy

February 22, 2011

I am always on the lookout for innovative solutions to the problem of paying for long term care services.  Recently approved in Colorado, a top-tier insurance company now has a policy that incorporates several cost-saving measures while still providing excellent coverage.  The policy also qualifies for the Colorado Long Term Care Partnership.  Here is how it works:

There is a built-in 80%/20% copay arrangement.  For example, if you incur $100 of qualifying long term care expenses, the insurance company will reimburse $80 and you will be responsible for the remaining $20.

The policy owner has a guaranteed right (regardless of any developing health issues) to purchase an additional 25% of the original total benefit amount/benefit pool every five years.  This right to purchase additional protection continues until age 76.  So, if you buy your policy at age 55 with a $400,000 initial benefit pool, you could increase your benefit pool by an additional $100,000 at age 60, and another $100,000 at age 65, another $100,000 at age 70, and yet another $100,000 at age 75.  The cost of each benefit pool increment is based upon your age at time of purchase, but a volume discount  partially offsets this age-related cost increase.  Forgoing any five year increase(s) does not affect your right to accept any remaining increases. 

Unlike every other long term care insurance policy, this does not have any daily or monthly benefit limitation.  Thus the uncapped daily/monthly benefit automatically keeps up with inflation.  You are reimbursed for 80% of whatever the actual cost of care.  Important: while the daily or monthly benefit amount does keep up with inflation, the benefit pool does not…unless you accept the 5-year, 25% guaranteed purchase options as they are offered.

At the time of application, you select your initial total benefit amount (benefit pool).  Choices are: $100,000, $200,000, $300,000, $400,000, $500,000, $600,000, $700,000, $800,000, $900,000, or $1,000,000.  As with the guaranteed right to increase your benefit pool, a volume discount applies.

Advantages:

1. Much lower cost (I estimate around 30% – 50%) less than traditional long term care insurance policies.

2. No need to decide upon a daily or monthly benefit cap… because there is no cap.  Any amount of daily or monthly expenditures can be reimbursed (at 80%) up to the remaining benefit pool/total benefit amount.   This is powerful.

3. While also covering adult day care, assisted living and nursing home costs, the policy benefits are focused upon home care.  This is the only long term care insurance policy that can cover 24/7 home care without requiring a very high daily or monthly benefit cap….and consequent very high premium.

4. Simplicity:  This policy is very easy to understand and thus it becomes very easy to make an informed decision.

Disadvantages:

1. The lower premium comes at the cost of, a) the 20% copay and, b) no built-in inflation protection for the benefit pool/total benefit amount.

2. Simplicity comes at the cost of fewer policy design options.

Summary:

This new policy will not be the best fit for everyone.  It is however, worthy of consideration by anyone who has not yet purchased long term care insurance because of cost.