Many of today’s retirees had the foresight to purchase a long-term care insurance policy back when premiums were affordable. Unfortunately, a number of retirees and pre-retirees let their policies lapse.
Why? For the same reason they need the benefits — because of some form of cognitive impairment.
In one study, researchers tracked Americans ages 65 and older for 10+ years to find out if they would eventually drop their LTC policies and why, and if any of those who did later entered a nursing home. The study revealed that about one in four who eventually went into a nursing home allowed their policy lapse sometime in the previous four years, meaning they forfeited coverage that would have helped pay for nursing home care shortly before it would have been put to use.
Two reasons were cited for dropping an LTC policy: (1) Because they could no longer afford the premiums, or (2) because they forgot to pay their premiums due to age-related cognitive impairment. The study also revealed that people with less income and fewer assets were more likely to let their policy lapse.
Interestingly, individuals over the age of 65 with a daughter were less likely to let their policy lapse, in part because she made sure they continued to pay premiums.(Source: 1)
Many LTC companies enable policyholders to set up a contingency notification. If the premium goes unpaid, a notice is sent to one or more relatives on file to let them know. This is a preventive measure that allows a retiree’s adult child or other relative to remind their loved one of the importance of this coverage and ensure the policy lapse is intentional.
Long-term care policies also have a federally regulated grace period, keeping the policy intact for up to six months after the premium was due. However, an insurance form or personal letter must be submitted providing evidence that the policy holder was cognitively or functionally impaired when the policy lapsed.(source: 2) It’s a good idea to review the LTC policy to see what guardrails are in place to help maintain coverage.
1 Center for Retirement Research at Boston College. Squared Away Blog. Nov. 17, 2015. “Long-term Care Policyholders Who Lapse.” http://squaredawayblog.bc.edu/squared-away/long-term-care-policyholders-who-lapse. Accessed Dec. 23, 2015.
2 LTCshop.com. “Lapse-Protection Forms.” https://www.ltcshop.com/long-term-care-insurance/lapse-protection-forms. Accessed Dec. 23, 2015.