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Comparing Individual Long-Term Care Insurance To Group

Armen Hareyan's picture

Senator Edward Kennedy's national Long Term Care Insurance plan called CLASS Act and the reform talk about the health insurance system have caused much public debate. While the focus is on the cost and the effectiveness of the proposed plans author Allen Jesson asks the following question. Which is better, individual Long Term Care Insurance or group plans for seniors?

More and more companies are beginning to offer long-term care insurance (LTCI) to their employees as part of an overall health care benefits package. And since buying group medical insurance is usually a way to get lower insurance rates, most people automatically assume that the same is true with LTCI policies.

However, in most cases individual LTCI policies will be able to offer not only lower premiums, but also better benefits if they are examined in a true apple to apples comparison. Group LTCI can be a good answer for those who have severe health problems, as they may be able to qualify under the simplified underwriting procedures. The same lenient qualifications also drive up the cost of coverage for everyone else in the group.

That is why most individual long term care insurance policies actually cost less for relatively healthy applicants, the underwriting procedures in use effectively screen out most of those costly severe health cases. One of the ways that group long term care insurance companies hide or mask the increased cost of their policies is by not including an automatic inflation benefit as part of the premium. They typically tell you that they are providing a 5% compound inflation protection, but they do it as something called a Future Purchase Option. This means that they will come back every three years or so to make an offer based on an additional 5% compound increase in benefits.

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This is the least expensive way to buy long term care insurance initially because the inflation protection is not built into the premium.

The problem is that it is the most expensive way to buy long term care insuranceover the life of the policy because you are buying additional protection every three years at a later age. Moreover, you are paying for that additional protection at that later age instead of the age when you originally purchased the policy.

Therefore, these kinds of long term care insurance policies often wind up costing the policyholder twice as much or more over the life of the policy as if they had just bought the automatic inflation protection built into the policy at inception. Another method that group policies use to lower premiums by providing less coverage is reducing the home care benefit to 50 to 75% of the daily benefit. This may indeed lower costs, but it is not helping policyholders accomplish what they usually want most: to stay at home and remain as independent as possible for as long as they can.

Of course, some long term care insurance group policies can be a very good value, but it always pays to compare them to individual policies using identical benefit features to make the comparison fair.

Written by Allen Jesson - www.gilbertguide.com/