As long term care insurance gains more traction as a critical component of everyone’s retirement planning, more and more employers and association’s are offering group long term care insurance to their employees and members. Unfortunately, most people just assume a group plan is better than an individual plan. This is rooted in the concept that the more people who subscribe to a benefit, the lower the premium should be for the group. Also, we tend to have somewhat of a blind allegiance that our employer is looking out for our best interests when they shop the market for an insurance product to offer their employees. So let’s look at the differences in benefits and premiums between a group and individual plan.
First off, the idea that long term care insurance should be lower in premiums for a group is a fallacy. As Kiplinger’s Finance states “group plans have very limited underwriting, which means that healthy people end up paying the same price as less-healthy people. If you have medical conditions, this could be a wonderful deal. But, if you’re healthy, you can do better with an individual policy that’s tougher on medical issues.” Most group plans have what is referred to as “Modified Underwriting” which means that anyone within the group is guaranteed coverage if they can answer a few “knock-out” questions. The “knock-out” questions are questions designed to identify the worst of the worst in terms of medical conditions such as: have you been diagnosed or treated for Alzheimer’s, Parkinson’s, or are you HIV Positive. The group policies typically do not check medical records nor conduct personal telephone interviews. As the Kiplinger’s Article also states: “most group plans do not offer special rates for people in particularly good health nor discounts for couples”. With individual plans there is always an additional 10% to 15% discount for people who would qualify for the “Preferred” rate and between a 30% to 40% discount for any couples who sign up together.
Unless you are not healthy enough to qualify for an individual plan, group plans are never a better deal. With an individual plan you will receive more benefits at a lower cost and you would be able to obtain a Partnership plan which would guarantee that a large portion of your assets will never have to be spent down due to long term care. And isn’t that the whole point of taking out this kind of protection? Be aware that group plans offer give you the illusion that they’re cheaper. They do this by taking out INFLATION PROTECTION or giving you a very watered down version of it. Keep in mind that historically, over the last 30 years, the costs of nursing homes have increased an average of 5% per year compounded. Most group plans and certainly ALL CA Partnership plans have a built-in 5% compounded inflation protection. This means that your benefit will increase 5% every year you own the plan, but, the premiums do NOT increase with the increase in benefits. With an individual Partnership plan you will receive: Inflation protection, the Asset Guarantee, and a lower premium for the same benefits you would receive with a group plan. (For more information about the CA Partnership Long Term Care)
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