Group Long-Term Care Insurance: NOT the Value You Might Think

The LTC insurance industry is up to a new trick: Marketing LTC insurance through groups. The industry "advertises" that group LTC insurance is a better value than individual coverage. We'll explain later in the article why this is simply NOT true.

Group LTC coverage is becoming a common option in the workplace. The employee usually pays the entire premium, but the insurance company trains the employer to "sell" the concept to their employees as a value-added benefit to being employed by the company. This is also NOT true.

Group coverage can also be purchased through associations such as AARP, on the internet, through the mail, or over the phone. Is this new trick - Group LTC Insurance - a good value? The short answer is: No, unless you're in poor health.

ADVERSE SELECTION

Individually issued LTC coverage offers a better value than group LTC coverage. Why? Unlike most types of group coverage, group LTC insurance is usually MORE expensive than individually issued coverage. This is because group LTC insurance is normally issued to individuals who would not otherwise pass the typical underwriting requirements of the insurance carrier. This is called "Adverse Selection" and the result is a much higher than average number of claims. Because insurance companies know they'll have a greater number of claims with group LTC insurance, they charge a higher premium.

In future years, adverse selection will also cause premium rates to be raised more frequently than premiums for individually issued policies. In fact, rates on older group policies, such as coverage issued through CalPers, are already being raised to the point where some families are canceling the coverage. The consequences of adverse selection spell bad news for healthy people who purchase group coverage: They subsidize the current premiums as well as the more frequent premium increases caused by the claims of those in poor health.

"BUT THE PREMIUM SEEMS SO LOW!"

Group LTC coverage can appear to have a much lower premium than individually issued coverage. Buyer beware! Read the coverage details. Understand the eligibility criteria. Compare these details and the benefits apples to apples with coverage that could be available on an individual basis.

For example, most group coverage does NOT offer the automatic inflation protection benefit as part of the base policy. Instead, what's offered is an "Increase Option", which offers the right to purchase additional coverage in the future, at of course, a much higher premium rate. This option has the appearance of inflation protection, but on closer examination, you'll see that the coverage does not include automatic inflation protection!

Unfortunately, the "appearance" of a lower premium with group coverage has given thousands of policyholders the illusion of security — the belief that they've properly planned ahead for long-term care. These policyholders will end up with no meaningful long-term care insurance in force when they're likely to need it the most. They'll either be forced to drop the coverage because of increasingly higher premiums; or, if they keep the coverage in force, will learn that the benefits they purchased are inadequate.

IS GROUP LTC INSURANCE EVER A GOOD VALUE?

There is one situation where group coverage is worth considering. If you are unable to qualify for individually issued coverage due to health problems, you may want to consider any group coverage available to you. In this situation, work with your financial advisor and an LTC Planning and Insurance expert they recommend to weigh the pros and cons of the coverage, and to assist you with evaluating your options.

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