Schwartz, Conroy & Hack recently came to the rescue of a nonagenarian whose long-term care policy lapsed due to her alleged failure to pay the policy premiums. (Spoiler alert: Our client tried to pay the premiums, but the insurance company would not let her.) The cautionary tale below shows why it is important to carefully monitor the insurance accounts of your aging relatives.
Long-Term Care Policies
Long-term care insurance covers the costs of nursing home care, home health care and adult daycare for individuals who are no longer able to care for themselves due to physical and/or cognitive disability. While every policy is different, benefits are generally triggered when an individual can no longer independently perform two or more of the so-called activities of daily living: bathing, dressing, walking (or transferring to and from a wheelchair), feeding themselves, toileting and continence.
Conceptually, long-term care insurance is valuable coverage for individuals who do not wish to financially burden their children as they age. Indeed, many long-term care policies will pay in excess of $500 a day toward the care of insureds who qualify. For policyholders who are cared for at home, benefits can be used to pay the salaries of home healthcare workers or to compensate a close relative or friend who attends to the insured’s needs.
Insurance Company Miscalculation
As with many other types of insurance, long-term care insurers issuing policies in the late 1990s and early 2000s grossly underestimated the number of insureds who would actually make claims against their policies. Owing to these drastic actuarial miscalculations, long-term care insurance companies suffered from catastrophic losses when their insureds inevitably grew older, infirm, and, predictably, made claims against their policies.
This left insurance companies with only two options to avoid these types of catastrophic losses and maintain their solvency, and we have seen a lot of examples of both: 1) lapse the long-term care policy; or 2) deny the claims made under the long-term care policy.
In our client’s case, the insurance company chose the former over the latter.
Lapsed Policy
Our client and her husband were both careful and responsible planners who secured long-term care coverage 24 years ago. From that time until his demise two years ago, our client’s husband paid all the bills. When he passed, our client dutifully took over the finances and made multiple, well-documented, good-faith attempts to pay the premiums on her long-term care policy. Each time she attempted to pay the premium, she was provided with a variety of excuses as to why the insurance company would not accept that premium. The insurance company never advised her, however, that the bank account number for her automatic withdrawal was a few digits off. Had our client been informed of the error, she would have promptly corrected it. The insurance company did not want to explain this simple error, however, as it was financially self-interested in allowing our client’s valuable policy to lapse.
After her multiple good-faith attempts to pay her premium, our 90-year-old client received a notice that her long-term care coverage had lapsed due to non-payment of premiums. Try as she might to obtain information about why the policy lapsed, the insurance company kept giving her the run-around.
The Outcome
After Schwartz, Conroy & Hack was retained by the client, we promptly filed suit against the insurance company. Thereafter, and at very little cost to the client, we were able to successfully negotiate with the long-term care insurance company’s attorneys to reinstate her policy.
The Takeaway
We share this cautionary tale because, while our client’s story had a happy ending, she would have been spared time, expense and much aggravation if the policy lapse had been prevented in the first place. Many states, such as New York, have laws that require a long-term care insurance company to provide notice to an alternate individual when there is a potential for a lapse. When they secure a policy, many of our clients provide the insurance company with the contact information of their children. However, over the course of 10 to 20 years, the children get married, move away and change their addresses – and they do not receive the lapse notice.
If you have an older relative who has valuable insurance coverage such as long-term care insurance, we encourage you to understand when the premiums are due and ensure that those premiums are paid.
If you have any questions about your long-term care insurance coverage or are involved in a dispute with your long-term care insurance company, contact us. We have the expertise, experience and tenacity to make insurance companies keep their promises to policyholders like you.