E&O Risks When Writing Long-Term Care Insurance

By | December 13, 2012

As Americans do their best to plan for retirement, all it takes is a visit to a financial planner to realize the importance and value of long-term care insurance. The goal of purchasing it is two-fold: retaining as much of one’s assets as possible and getting the proper care when it’s needed.

While securing long-term care insurance (LTCi) is not difficult, consumers who do so without the assistance and expertise of a long-term care insurance specialist, could find that the coverage they purchased is inadequate for their specific situation. When will they find this out? Most likely, when the insured needs to use their coverage. Unfortunately, by then it’s too late.

Long-term care insurance is a unique product, unlike other kinds of health insurance. It requires dealing with a specialist who takes the time to know the client and truly understand the client’s issues and objectives. A variety of coverage options are available with long-term care insurance, and a specialist is better equipped to provide a custom fit for each client. A discussion between the specialist and the prospective client allows an important conversation to take place, so that the prospective client can truly understand the product, and how it does — and doesn’t — work. Uncovering misunderstandings or misperceptions will help the consumer make an educated decision.

The Best Option

One of the common misperceptions is that long-term care insurance only provides benefits when the policyholder is in a nursing home or assisted living facility. In actuality, services can be delivered in one’s home, an assisted living facility, an adult day care center, a nursing home or in a variety of other settings.

Is long-term care insurance right for everyone? Probably not. Based on the size of the client’s assets, Medicaid or other community-based programs may be better suited to meet an individual’s needs. Medicare covers little of the cost for long-term care, and the benefits could be limited to short periods and restricted to specific illnesses or injuries. The bottom line is that if there are significant assets to protect, then LTCi is probably the best option to pursue.

What to Do

From an errors and omissions (E&O) perspective, the following suggestions are recommended.

Meet with the client and spend as much time as necessary talking though their specifics. Ask questions and listen. Determine what they are looking to accomplish via the purchase of long-term care insurance. It is likely you will deal with both members of a couple. In 2011, just short of 80 percent of LTCi purchases involved couples/partners. Many details are involved, so be sure to document these discussions.

The client is counting on your expertise and knowledge as a specialist. Don’t assume you know the answer to any of the client’s questions. For example, while you may be meeting in New York, will the client retire in New York? If they retire to Hilton Head or Scottsdale, is the cost of long-term care in those areas different? This is an important issue to uncover and discuss to properly counsel the client.

Make it a priority to determine that prospective clients fully understand the coverage they are considering, including what it covers and what it doesn’t. Ask the prospect questions or ask them to repeat what you have verbally communicated. Doing so may help them realize that they don’t understand the LTCi product as well as they thought.

Use the carrier’s promotional material detailing the coverage and available options. Chances are you will discuss the LTCi offerings of several carriers. Because of potential differences among the products, provide the promotional material for each of those companies.


Make sure the client knows the various options available and understands how they work. Options include but are not limited to:

• The Daily Benefit. In 2011, more than 70 percent of purchasers selected a benefit between $100 and $199. Is this benefit what your client is looking for?

• The Elimination Period (similar to a deductible). This is measured in days and can be as few as zero and as many as 365. The lower the elimination period, the higher the premium. In 2011, the majority of purchasers selected 90 or 100 days. Since “one size” does not fit all, educate your clients and then look for them to make this important decision.

• Length of Benefit Period. While lifetime benefits are possible, the majority of purchasers selected between a three- and five-year benefit period. Once again, educating the consumer is extremely important. This will provide them with the information they need to decide.

• Inflation component. In most situations, this is not a standard part of the contract, but should be discussed at length. There are a number of options for your client to consider. The most common options are 5 percent compound and 3 percent compound. But there are newer options available that are integrated with the Consumer Price Index as well as other factors. As mentioned above, provide prospective clients with the information they need to make the proper decision.

A Strong Focus

Tobe Gerard, an LTCi specialist and owner of Tobe Gerard Insurance LLC in Natick, Mass., (tgerard@tobegerardinsurance.com), says writing this type of business requires a strong focus.

“When I think of the potential for having an E&O claim, I’m not saying that it can’t happen to those of us who are LTCi specialists, but I believe it’s more likely to happen to the agent who sells one or two policies a year,” Gerard says. “That’s because you need to stay abreast of so many things including, but not limited to, which carriers you should be placing your LTCi business with, what are the nuances of coverage from one company’s product to another, which companies have had aggressive rate increases, who has been in and out of the market, who has the highest Comdex, etc. Those of us who are LTCI specialists eat, sleep, and breathe this stuff on a daily basis!”

Claims of more than $1 million can and do occur. For customers now receiving the benefits, purchasing this coverage was a wise decision. Customers who purchased the coverage only for it to not respond as they thought could become your worst nightmare. This is not an insurance product to be taken lightly — it is truly a specialist product. Unless you dedicate the time to really understand this product and the various issues associated with it, it might be best to let a specialist take over.

Pearsall, CPCU, ARM, is president of Pearsall Associates Inc., a risk management consulting firm specializing helping agents protect themselves. He is also a special consultant to the Utica National Agents E&O program. Phone: 315-768- 1534. E-mail: curtis@pearsallassociates.com. Blog: www.agentseotips.com.

About Curtis M. Pearsall

Pearsall is president of Pearsall Associates Inc., a risk management consulting firm. He is also a special consultant to the Utica National Agents E&O program. Phone: 315-768- 1534. Email: curtis@pearsallassociates.com. More from Curtis M. Pearsall

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