High Lapse Rate: Watch Out for Long-Term Care Insurance

Cary, NC Estate Planning Lawyer 

Cary, NC Estate Planning Lawyer 

Out-of-pocket long-term care is incredibly expensive, which is why many people use Long-Term Care Insurance as a way to avoid the high costs of nursing or assisted living facilities. But, there's a secret that a lot of policyholders and their families aren't told when considering Long-Term Car Insurance: there's a good chance your policy will lapse before you're able to use it.  

Most people seek these sorts of policies in their 60's and hope to use them in their 80's. A premium is paid, much like life insurance, but, unlike life insurance, the premiums are being paid by people in their 60's and 70's. The rate of cognitive decline is much higher in those years then when you're normally paying life insurance premiums. So, for 38% of men and 32% of women, one month you forget to pay the premium. No big deal, right? Wrong. Your policy just lapsed. Your coverage is gone.

If you fail to make even one premium payment, you could have just thrown away all of the premium payments you've already made, and bought yourself a ticket to the extremely expensive long-term care facilities you were trying to avoid paying for. Sadly, the people most likely to forget to pay their premiums (those in cognitive decline) are those most likely to need long-term care in the future.  

The insurance industry claims there's a safeguard in place to prevent these types of lapses - policyholders can have their premium statements sent to family members or representatives. But the operative word there is "can", not "must". If the policyholder doesn't understand they have an issue remembering to pay their bills, what would trigger a request to have such statements sent to someone else? 

Make sure you have a plan in place for these sort of insurance policies: Either have the premium automatically drafted from your bank account, or have a loved one pay it for you.