At less than 30 years old, long-term care insurance is still the baby of the insurance industry. Some might even call it the Rodney Dangerfield of the business. It just doesn’t get much respect.

Consider the unfounded charge that LTC insurance doesn’t cover Alzheimer’s and dementia. It’s false. “Alzheimer’s is the No. 1 cause of claims paid by LTC insurance,” says Jesse Slome, executive director of the American Association for Long-Term Care Insurance, an industry group headquartered in Westlake Village, Calif.

He may be a kind of cheerleader for the industry, but he’s far from alone. Murray Gordon, CEO and founder of Riverwoods, Ill.-based MAGA, an independent LTC insurance advisor, concurs. Alzheimer’s and dementia “represent 50% of all LTC insurance claims,” he says.

Limitations and Exclusions 

That said, it doesn’t quite tell the whole story. Some experts note that many LTC policies these days fall short of covering all that’s required in Alzheimer’s and similar conditions. Typically they “do not pay for the higher cost of special facilities sometimes needed for people with Alzheimer’s,” says Beth Blecker, a certified financial planner in Pearl River, N.Y. “These facility costs are higher than those of normal assisted care or nursing home care facilities.”

Also, she says, many plans don’t provide “adequate coverage for a long, drawn-out condition like Alzheimer’s.” That’s because, in the face of rising premiums (some have risen as much as 50%) many clients have chosen to buy cheaper, stripped-down policies that only pay benefits for a limited time. “It’s now very, very expensive to get an unlimited policy, [so] many people are buying smaller policies with only three years of coverage,” says Blecker. For many LTC situations, that might be enough, but Alzheimer’s can be different. “Many people suffering with Alzheimer’s are physically healthy and may live many years,” she adds.

LTC insurance often contains other limitations, exclusions, restrictions and caps as well. For instance, a 5% compounded inflation rider used to be standard. But with costs soaring and interest rates near record lows, clients are lucky if you can find an affordable 4% inflation rider. “John Hancock has gone as low as a 2% compounded inflation rider,” says Gordon, “but 3% is most common now. The lower the inflation rider, the cheaper the premium.”

The Origin of Restrictions 

These changes are attributed to updated actuarial data. Early on, carriers offered overly broad LTC policies. They were surprised to find that people were living longer than expected, and not letting their policies lapse, thus many carriers went out of business. The surviving ones had to raise rates and tighten their standards just to stay afloat. (That included charging women higher premiums than men, ostensibly because women tend to live longer and thus represent a bigger risk.)

“You’ve got the insurance companies on the one hand trying to figure out how to provide a service and still make a profit. Then you have the consumers on the other, who want all they can get. So there’s always a sort of tug-of-war,” explains John Ryan, principal at Ryan Insurance Strategy Consultants in Greenwood Village, Colo., which assists fee-only advisors with their clients’ insurance needs. “The carriers tried to be as generous as possible, until it started to hurt them. That’s when restrictions and limits were born. They might not completely exclude something, but they could put on some restrictions. They could limit certain situations somewhat, but not entirely.”

In today’s typical contract, benefits cannot be paid for conditions that arise from drug or alcohol abuse, self-inflicted injury, attempted suicide or an act of war. That’s about as far as they go in terms of out-and-out medical or diagnostic exclusions. 

But there are other clear restrictions. “Policies may specify that coverage only applies where the diagnosis is made after the policy is purchased,” says Royal Oakes, a partner at the law firm Hinshaw & Culbertson in Los Angeles. “The main area of excluded coverage relates to pre-existing conditions. Policies might exclude conditions entirely, or [they] might require that a specified time period expire, following issuance of the policy, before coverage will begin.”

Benefit Disbursement Restrictions 

There are also restrictions in the way caregivers are compensated. “Some companies are eliminating riders that provide not just reimbursement for caregivers’ wages but guaranteed fixed daily sums whenever any level of care is needed,” says Oakes.

Actually, caregiver wages are often a sticking point. “Many older policies allowed you to hire your own aides, [but] now many policies require you to hire aides through an agency, which can be considerably more expensive,” says Blecker. Agencies charge what are essentially finder’s fees that can double the cost of care.

Another, related complaint is that family caregivers are treated differently. “There are policies that exclude care provided by a family member,” cautions Ryan. 

But Gordon at MAGA insists there is a way around some of these strictures if a particular LTC policy permits it. “A few carriers allow you to take one-third of benefits in cash, up to a certain amount, which can go to family caregivers or anything else,” he says, citing such companies as Mutual of Omaha and Transamerica. “And in some cases, the elimination period is waived for the cash benefit, so it can start on day one, as long as a medical professional signs off on the claim.” For certain plans, he says, eligibility for cash benefits requires filing a formal plan of care every 90 days.

A Web of Details 

It can be difficult to keep up with all the different rules and limits and exceptions. That’s partly because the carriers keep tweaking their terms. “Nowadays, every six months they come out with small changes,” says Gordon.

The biggest area of change—and where the most restrictions have piled on in recent years—lies in the underwriting. Which is to say, it’s harder than ever to qualify for LTC coverage. “In medical restrictions, there really hasn’t been much change. But companies are constantly coming up with new ways to try to underwrite the risk in order to provide the coverage and still make a profit,” says Ryan. 

Years ago, he says, companies might not request medical records from all applicants, or they wouldn’t send a nurse out to examine them unless they were over 75 years old. Now medical interviews are common for almost any age. “In the old days, you just filled out an application and sent it in. It was pretty easy to get coverage. In fact, they used to say LTC underwriting was the easiest underwriting there is. Now it’s getting up there with disability insurance underwriting, which has always been the hardest.”

This isn’t because the carriers want to be vindictive, Ryan points out. “It’s probably what they should’ve been doing all along, to manage their risks and stay solvent. They were careless at the beginning, and that’s biting them right now,” he says.

The Basics 

It’s always been the case that LTC benefits kick in when a policyholder can no longer perform two of the six designated activities of daily living: eating, bathing, dressing, toileting, transferring to/from a bed or chair, and controlling bathroom functions. The causes can be physical or cognitive impairments. 

None of that has changed. It’s mandated by the National Association of Insurance Commissioners (NAIC), an industry standards organization. “The NAIC model requires carriers to adhere to standardized policy language for tax-qualified LTC insurance coverage,” explains Steve Cain, a principal and national sales leader at Los Angeles-based LTCI Partners. “There’s no way for carriers to change these triggers without NAIC oversight and approval.” In addition, he notes all plans must be filed with state insurance regulators or the Interstate Insurance Product Regulation Commission, headquartered in Washington, D.C. Policies, including premiums, can’t be changed without prior approval, which usually takes six months or longer, he says.

So going forward, chances are that additional LTC insurance changes will be minimal. The general consensus seems to be that the industry has matured and arrived at reasonable rates and coverage definitions. “I do not expect further limitations for benefits,” says Len Hayduchok, president and CEO of Hamilton, N.J.-based Dedicated Senior Advisors. “Of course, some policies may give the insured the option to carve out benefits, but these provisions would have to be allowed” by various state insurance departments.

In fact, if there are any noteworthy changes looming, they may be enticements to combat the bad press of recent years. “Insurers have introduced assurances that a policyholder’s coverage cannot be canceled based on a deterioration in health,” says attorney Oakes. Furthermore, he notes, some carriers have eliminated a “requirement that, before a claim may be filed, the insured has to have been hospitalized or received skilled nursing-home care.”

And get this: Rates could come down. “Some carriers found they were charging too much, so they tweaked their assumptions and refiled to be able to lower premiums a little bit,” says Gordon. “If others find they’re not competitive, that they were too cautious in reaction to mistakes they’d made in the past, they might reduce premiums, too.”

Staying Up-To-Date 

As medical technology advances, some LTC policies are already trying to keep up. “There are policies that specifically say they will consider future medical devices, even if they haven’t been invented yet,” says Gordon.

It’s also possible that future technologies will make qualifying for LTC coverage even more selective. “I don’t see the exclusions changing, but I do see the underwriting changing,” says Ryan. “Who knows at what point companies will be using underwriting methods we haven’t even heard of yet, such as DNA testing.”

One thing is clear: With all these conditions and possibilities, choosing an LTC insurance product isn’t for amateurs. “They’re not one-size-fits-all,” says Gordon.