Long-Term Care Insurance:

High Percentage of Policyholders Drop Policies

HRD-93-129: Published: Aug 25, 1993. Publicly Released: Sep 3, 1993.

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Pursuant to a congressional request, GAO reviewed consumer protection standards for long-term care insurance policyholders who allow their policies to lapse, focusing on the percentage of: (1) lapsed policies; and (2) policyholders' premiums that are paid as sales commissions.

GAO found that: (1) at least 50 percent of long-term care policyholders are expected to allow their insurance policies to lapse; (2) the average age of persons purchasing individual long-term care insurance is 72 and the average age of persons admitted to a nursing home is 76; (3) many persons in need of long-term care may forfeit the amount of insurance they have already bought because some insurers are not required to pay benefits for lapsed policies; (4) a portion of long-term care premiums can be set-aside for benefits used in future years; (5) premiums can range between $1,100 to $3,000 a year for people between 65 and 75, and vary widely between states; (6) although the National Association of Insurance Companies (NAIC) attempts to limit the amount of sales commissions insurers pay, some companies pay commissions at twice the rate set by NAIC regulations; (7) first-year commissions are high because insurers need to create selling incentives and long-term care insurance is viewed as a difficult product to sell; (8) high first-year commissions could encourage abusive selling practices and force people into getting more coverage than they need; and (9) although state adoption of NAIC long-term care regulations would strengthen insurance company monitoring, states have not developed measures that would provide greater protection to long-term care insurance consumers.

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