Should You Ever Replace Your Long Term Care Insurance Policy?

Only if it places you in a better position than you were.  Compare the costs carefully.  Make sure the policy benefits are comparable.  Most of the time, it is not to your advantage to replace an existing policy.  People are sometimes advised to replace their long term care insurance policies with newer, more up-to-date versions.  Be careful.  If your policy is more than a few years old, replacement seldom makes sense for the following reasons:

1. You are older than you were when you purchased the original policy.  A major determinant of policy cost is your age when you apply.

2. About two years or so, insurance companies have introduced new policy series (versions)…almost always with higher premiums than the series before.

3. You make have had a new illness diagnoses or worsening of an existing medical problem since you applied for your current policy.  The underwriting rules for a particular company could have changed (this happens often).  Any of these  events could place you in a less favorable class (hence more expensive) rate class..

Most of the time this adds up to a significantly more costly new policy.  Before going any further, make sure that you are being shown an “apples to apples” comparison of policy benefits.  If your current policy has inflation protection, pay particular attention to what your policy benefit amounts have grown to.  Then make sure that the proposed new policy starts with these “grown to” levels. 

What to do if your current policy benefits are inadequate?  First look at complementing your current benefits with an additional policy.  For example, your existing policy may have only a daily benefit of $120 but you need $220 per day to keep up with current service costs.  Look at adding a second policy (preferably from a different insurance company) with a $100 daily benefit.  The combined cost of the two policies will usually be less than that of an entirely new policy with a $220 daily benefit amount.  A second policy can often be designed to improve combined inflation protection, again often at lower cost than replacement.

A question that came up several times during my recent Denver Senior Law Day presentations concerned older policies that cannot qualify for the Colorado (or other states) Long Term Care Partnership*.  Yes, Partnership is a good benefit, but is it worth doubling your long term care insurance premium?  Once again, probably not.

Before allowing yourself to be persuaded to replace an existing long term care insurance policy, it is in your best interest to:

1. Carefully compare the benefits of the old and new policies.  Make sure you will not be paying more for lesser benefits.

2. Analyse whether you could achieve the same benefits at a lower combined cost, by adding a second policy with benefits tailored to your long term care planning goals.

3. Make sure the illustrated premium of the proposed new policy (either for replacement or for an additional policy) is based upon your present medical history. 

4. Most important: If you do decide to replace your existing policy, do not cancel it until you know that your new policy application has been approved…or you could find yourself with no coverage at all.  Surprises are sometimes discovered in medical records during the underwriting process.  

* The Colorado Long Term Care Partnership says that with a Partnership-qualified policy, you can become eligible for Medicaid while retaining more assets.  Please see the October, 2010 Personal Edition (click on “Archive” in the left column of this eNewsletter) for more detailed explanation.

Disclaimer: Actual policy language, rather than the contents of this eNewsletter always takes precedence.  Long term insurance policies vary from company to company & within the same company.  Raymond Smith, The Long Term Care Specialist, does not give legal or tax advice.  Consult your tax advisor or attorney for these matters.


© Raymond Smith, The Long Term Care Specialist, 2011

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