Even the best Long Term Care Insurance policy won’t help you if you don’t let it. Unfortunately, policyholders are sometimes their own worst enemies, making understandable errors that undermine their benefits. Often, these mistakes can be avoided with a little foresight–and it’s yet another good reason to work with a seasoned LTCI specialist, who can ground that foresight in experience and expertise.
In other words, it pays to learn from the mistakes of other policyholders–so you can avoid their (often suboptimal) outcomes.
These two examples can help illustrate some common ways in which you might unintentionally undermine your LTCI benefits–and what you can do to avoid it. Being aware of these types of errors in advance can help ensure you get the most out of your policy.
Tell Your Loved Ones You Have a Policy
In our first example, we have Mr. Smith (for privacy reasons, this is not his real name). He was around 60 years of age when he needed to activate his policy. There was only one problem: the policy had lapsed.
How did this happen? Unfortunately, Mr. Smith developed a cognitive impairment, and this impairment prevented him from making payments towards his policy. As a result, his policy lapsed. Why didn’t Mr. Smith’s family or caregivers take over those payments? Well, Mr. Smith’s family didn’t even know he had a policy–so they weren’t aware of a lapse.
This means that, in order to receive LTCI benefits, Mr. Smith’s family had to jump through a number of time-consuming bureaucratic hoops (for example, getting Mr. Smith’s physician to write a letter saying his diagnosis predated his claim). How could this headache have been prevented? Well, there are a couple of ways:
- Make sure your family knows about your Long Term Care Insurance policy and how to access your benefits.
- Always have a third party notification on your policy. This means that family members will be notified when a payment is late. If Mr. Smith had third party notifications set up with his LTCI carrier, his family would have been able to intervene before the policy lapsed.
- Have open and honest conversations with your family about your long term care wishes and your financial options.
Do the Math Before Forfeiting Your Policy
Forfeiting your Long Term Care Insurance policy can feel like a great way to recoup a little bit of money. Forfeiting means that you cancel your policy and benefits–all (or most) of the money you paid in over the years is refunded to you. In this way, you can suddenly find tens of thousands of dollars in your bank account. Sounds pretty slick, right?
Well, it doesn’t always pay off. That’s what Ms. Johnson (again, not her real name) found out. At the age of 63, she decided to forfeit her policy. She had been paying from 1998-2019. It probably seemed like a safe bet and a good way to boost her short term finances. But less than one year later, she needed long term care–and now she had no LTCI policy to help cover it.
The math didn’t work out in her favor. Her forfeited policy refunded her $67,901. But if she had kept her policy active, it would have paid out over $202,000 for her care. That’s an extra $140,000 that was just gone. Her adult son sold her house to help pay for her medical expenses, but even that didn’t cover the full costs of her care. Her LTCI really would have come in handy.
No one’s really happy in this kind of situation. So… how could it have been prevented? Here are a couple of ways
- Be very careful about using financial strategies such as forfeiting your policy. It may feel like you’ll never use your policy, but that’s only because it’s impossible to predict when you’ll need it. When you forfeit your policy, you also forfeit any benefits that came with it.
- If you absolutely need to forfeit your policy, make sure to do the math first. Check to see how much your policy may pay out vs. how much you’ll receive from the forfeit. Try to make the best long term decision you can–because the reality is that you might need long term care at any point in your life.
- Please keep in mind, not all policies have the option to forfeit/surrender in order to recoup premiums paid in. In some cases, canceling could simply mean you get nothing. Be sure to educate yourself on any options presented to you before making a decision.
When in Doubt, Ask for Help
We get it, Long Term Care Insurance can be complicated. There is a lot of information to know and a lot of options to balance. And, as a non-expert, you might not know some of the common pitfalls that forfeiting your policy or not telling your family about your policy might have.
That’s why it’s important to get help where you can. Working with a LTCI expert can help ensure that you have all your bases covered–and you don’t mistakenly undermine the benefits you’ll need.
If you have questions about Long Term Care Insurance or how to make sure your policy is the right fit for your needs, contact Gordon Associates Long Term Care Planning today!
To help determine if long-term care (LTC) insurance is right for you, we are offering a FREE informational guide. This is a comprehensive booklet that will answer many of your questions about LTC and assist you with your health care planning.
To help determine if long-term care (LTC) insurance is right for you, we are offering a FREE informational guide. This is a comprehensive booklet that will answer many of your questions about tax breaks and incentives for LTCI for federal and state taxes.