FreeAdvice.com: What is long term insurance?

Gerry Goldsholle: Long term care insurance is designed to pay the policyholder money if
and when the person who is insured becomes incapable of performing a sufficient number of
activities of activities of daily living and requires assistance to perform such activities.
Activities of daily living include the ability to bathe oneself, to feed oneself, to transport
oneself from one location to another and several similar activities.

FreeAdvice.com: What is the history of long term care insurance? Is it a
relatively new product?

Gerry Goldsholle: Long term care insurance was developed during the 1980s in an
attempt to anticipate the needs of the rapidly aging population. In the past, people relied on
family members to take care of them if they became incapable of caring for themselves. In modern
America, families are increasingly spread out across the country. In addition, most households
have two working family members. It's frequently difficult or impossible for a spouse or child to
take care of a family member who becomes incapable of taking care of him or herself. Long term
care insurance provides cash that helps or enables people to hire someone to help the person
needing long term care.

FreeAdvice.com: Why was long term care insurance created?

Gerry Goldsholle: There is a definite social need and value for long term care
insurance, and where there is a need, there is usually an opportunity for a business create and
provide a product or service that meets that need, which will also be profitable for the
business. From the insurance company side, the issue has always been whether or not the insurance
company can properly price that product.

Insurance premiums are usually based on experience and when companies began to create long term
care insurance, there was very little real experience to go on. I know because I was involved
with the early development of the product. While there was some data on the number of people who
go into nursing homes, proving that a "nursing home only" product was not going to be a big
seller. People resist going into nursing homes – they just don't want to go to a nursing home. We
recognized that if the industry could design a product that would pay benefits without a person
having to enter a nursing home, it would be a far more desirable product, with a much larger
potential market. That's why most long term care insurance policies today cover people who need
not go into nursing homes, but require some assistance and can get that care at home.

There was precious little actuarial data to show what the cost would be if we created a long
term care product paying money to care for people at home, as the very prospect of paying money
would change the dynamics. Would we insure a cross section of the American public, or would we
find that the purchasers are people who would be most likely to make claims? How would the
existence of the product change the demand for at home care? Would a large percentage of families
that otherwise have provided care to an elderly relative stop providing that care because it was
insured, and instead go out and hire someone else to provide the care? Thus, there was great
uncertainty as to the costs going forward, and depending on how the policies were designed, that
could come back to bite the insurance companies and/or the policyholders.

Most elderly people did not want to go into a nursing home. A nursing home was regarded as
death's waiting room and people have long tried to avoid the need to go into nursing homes where
such care was traditionally provided. People wanted to have care provided in their home setting
if at all possible. Long term care insurance essentially migrated from being a nursing home
policy to a policy that paid benefits to people who could still stay at home, but needed some
assistance in that home to conduct their normal daily activities.

The premiums on the long term care product, especially as you get north of age 60, become
reasonably high. Many life insurance companies also looked at long term care insurance as an
additional product for their agents to sell. The typical buyer of a long term care product is
someone in his or her 50s or 60s, and those people generally don't need to buy life insurance.
Thus, long term care insurance was a product that could be sold to what is the most affluent age
group. This demographic was affluent and growing rapidly.

Some insurance companies saw long term care insurance as a product that could carry very high
commissions and thus support and grow their field forces. There is competition among companies to
attract agents and insurance companies know that high commissions are one of the best ways to
attract agents and motivate them to sell your products. That's often not good for consumers or the
companies in the long run, but some corporate managers take a short term viewpoint and sales
managers are measured on sales growth, not on what's good for the consumer or for long term
profitability. Cash value life insurance typically is a product that involves high commissions.

Long term care insurance is triggered by some future event – such as the inability to provide
for one's activities of daily living – and that may never occur or may occur some time in the
future. That enables the money that is paid as premium today to be invested by the insurance
company.

Investment income is the way most life insurance companies make their principal living. The
fact that they have to cover certain events such as a catastrophic illness, disability or the
inability of a person to engage in a sufficient number of activities of daily living is the basis
for them to justify receiving the premiums.

From an insurance company perspective, this was a product that had the potential to bring in
significant amounts of premium that could be invested by the insurance company and paid out
perhaps some time in the future. Insurance companies knew people didn't want go into
nursing homes, so even if you had insurance that only paid for nursing home stays, people would
still fight to avoid going into nursing homes not withstanding that that would be paid for.

The critical issue was how would the availability of long term care insurance change behavior
patterns so that if the insurance company paid for it - why not get an aide to come into the house
for several hours a day? Why not hire somebody to save the family member's need for coming in and
interfering with his or her own life. That was one of the major factors the insurance companies
were concerned about when it came to long term care insurance - that the availability of this
insurance would change usage patterns.

Some insurance companies were overly enamored with the prospect of getting relatively high
premiums in the door, with the likelihood that they wouldn't have to pay immediate claims on the
policies and thus could earn investment income on the money and disregarded the prospect of
getting large claims down the road. Many companies just didn't really price for it or anticipate
the risks lying down the road.

FreeAdvice.com: Can you explain long term care coverage?

Gerry Goldsholle: There are two basic types of policies. One type pays only to
reimburse the policyholder for the expenses that are actually incurred. So, if grandma becomes
disabled and unable to care for herself, no money is paid out by the long term care insurance
company unless someone pays money to care for her. So, if I hire an LPN (licensed practical
nurse) or nurse's aide who comes in for four hours a day, they'll reimburse the cost (subject to
the policy limits). Such policies typically require that the payment for the care be to an
outsider and do not pay for care rendered by a relative of the insured person.

Another type of long term care policy pays if an event or certain circumstances are present.
For example, there are types of policies that trigger benefits merely if the insured person
becomes disabled or incapable of performing three activities of daily living. They then pay the
insured an amount of money per day towards the actual costs that are incurred. Other policies pay
if the triggering condition is met, so they will pay the money even if I don't hire an LPN,
but bring in my daughter to handle that work.

One of the critical things emerging in this area is that many insurance companies did not know
how to price the product early on. Some built provisions into their policies to permit them to
increase the premium and companies are increasing the premium dramatically at this point in time.
Why are they increasing the premiums? It may be that the usage is much higher than was
anticipated, but it also may be that the investment earnings that they had hoped to achieve when
they originally priced the product have been much lower than they expected. Interest rates have
fallen dramatically from the rates of the '80s and early '90s and they're not making the big
returns they expected on the investment money.

FreeAdvice.com: Do you think that's one of the reasons why a lot of policy
benefits are being denied?

Gerry Goldsholle: The lack of investment performance on the reserves set up for long
term care insurance may be adding to the pressure. If you are the product manager of the long
term care line at an insurance company, you don't want to look bad. You're not making significant
amounts of money on your investments and certainly being generous on the claim side isn't going to
improve your overall financial results. The money that you pay out is going be charged to your
line of business.

As a result, many companies increasingly are becoming far more restrictive than they would
otherwise have been when it comes to claim payments. In many instances, they've been improperly
denying claims they should have been paying.

Another factor, separate and apart from the financial results, is that many of the insurance
companies that originally wrote long term care insurance were mutual insurance companies. These
were companies that were essentially owned by or operated for the benefit of their policy
holders. Over the past decade, some of the largest and best life insurance companies -- companies
such as Prudential, Metropolitan Life, John Hancock and Equitable have converted to stock
companies. Stock companies are owned by outside shareholders, not policyholders. Now their focus
is primarily on Wall Street, not on their policyholders. So, they are now competing on Wall Street
for attention and have to show profits and growth to achieve good price - earnings ratios.

As a result, many of the life insurance companies that wrote long term care insurance have
basically changed their structure and mission from the time the policies were issued. Some have
become just another for profit company that's out to make money, often at the expense of
the customers. There's a lack of nexus between the customer and the owner because the owner is
now somebody different than the customer.

FreeAdvice.com: Who is the target market for long term insurance products?

Gerry Goldsholle: From the insurance company perspective, this is a sale based on
fear or risk. One target market is the older person himself who may be concerned that he may
deplete his assets and have to go into a nursing home. He might think, 'You know, I won't be able
to stay at home. I won't be able to take care of myself. I may lose everything I possibly ever
had. What'll happen to me? There's nobody to take care of me.'

The second target market is the family member of an older person who says, 'My God, Mom or Dad
or Aunt Millie is getting on in years. I'm the family member responsible for his or her care and
that will really tie me up. I won't be able to work. I won't be able to travel. It will impact
my ability to care for grandchildren and I am getting older too. I don't know what's going to
happen in the event that this relative is going to need some care and I really don't want to have
to put the relative in a nursing home. I don't want him to have to rely on the mercies of the
Social Security Medicaid System down the road, so let's just buy some insurance to protect against
that.'

FreeAdvice.com: What about buying long term care insurance for children and
grandchildren?

Gerry Goldsholle: The insurance company would love people to buy this product when
they're very young as the likelihood of something going wrong when you're very young is very, very
low and therefore the product is priced lower. However, the longer you put in the money, the more
assets you'll pay, producing long term dollars the insurance company will invest in its account.

It's wonderful for a life insurance company to sell a product to someone that's young because
not only does the money come in, but the buyer may get tired of paying for it and let it lapse, so
all the insurance company does is collect the premium and it never has to pay out any claims.
It's a great deal for an insurance company. It's also a great deal for the agent because he or
she gets a rather substantial first year commission and ongoing commissions for a while on these
long term care policies. That's what motivates insurance agents to sell the product.

FreeAdvice.com: How is the product marketed?

Gerry Goldsholle: There's an incentive for the insurance companies to sell it
because they get money to invest. They increase their premium flow, and that's good for them. The
companies that have been issuing long term care insurance are life insurance companies. However,
the popularity and the need for life insurance have been declining in recent years as well as new
sales, the price and the premiums, especially in inflation adjusted terms. There have been all
sorts of socio-economic changes that have diminished the attractiveness of life insurance as a
product.

You have to ask, what are these life insurance companies doing to support their
infrastructure? They often have very expensive infrastructure. They need to bring in new sources
of premiums, otherwise they have to change the way they do business and that's hard to do in a big
entity. Similarly, agents are having difficulty selling more and more life insurance because the
need for it has declined. There are changes in the estate tax that are impacting the need for
insurance as well, and with dual income families and self-sufficient spouses, life insurance
doesn't serve the very same function.

Long term insurance itself is often marketed by individual agents, typically with a generous
commission structure. Long term care insurance is also offered through some associations using
products with a somewhat reduced commission structure. It's also marketed at the workplace by
larger employers as an optional employee benefit in the form of group insurance, sometimes with a
very low commission structure.

FreeAdvice.com: Would you recommend purchasing a long term care policy?

Gerry Goldsholle: I think the need for a long term care policy really depends on
one's individual family situation, on one's own financial situation, one's health situation and
one's risk tolerance and comfort level. I've seen long term care insurance being purchased by
very wealthy people who have a lot of extra money. They say that if they need long term care,
they don't want the cost of that care come out of their estate. They want the cost to be born by
the insurance company, and are willing to pay the premium to shift that risk.

One could say, if you don't need it, why are you buying it? If you have significant income and
resources, and that income and those resources will continue to come in if you become unable to
fully take care of yourself, is there really any sense to buying long term care insurance? But we
are all different, and that's why some do and some don't.

On the other hand, it never makes sense to impoverish yourself today by paying premiums you
can't afford. If it will make a real dent in your lifestyle to guard against the
possibility that you may have a disability down the road and get some money for it, then
why buy it?

FreeAdvice.com: Along that same line, are there specific individuals that you
would recommend to purchase the product or not to purchase it?

Gerry Goldsholle: Yes. I would recommend long term care insurance for a person who
lives far from his or her family, is financially comfortable – but not super-wealthy -- can afford
the premium and is worried about "what if" he became unable to care for himself. That would be
somebody for who long term care insurance makes sense.

In addition, if you have a distant parent who is struggling to make ends meet, you may want to
purchase it for them so that the financial burden won't fall on you and you will essentially trade
off the possibility of a significant expense down the road for a small and affordable premium
now. Children may want to chip in and buy a long term care policy to both assuage their possible
guilt and to pre-fund a parent's possible need for long term care.

FreeAdvice.com: Do you have any suggestions that would help individuals purchase a
long term care policy?

Gerry Goldsholle: I would look at the ability of the insurance company to make
premium increases. Look at the financial strength and integrity of the insurance company. There
are significant differences between insurance companies that most people aren't aware of. Ratings
are helpful in terms of financial stability of the insurance company at the particular time, but a
rating is very much a snapshot rather than a predictor.

There are a series of ratings from Best insurance reviews to Moody's to Weiss ratings. These
ratings are something to consider, but the fact that an insurance company may look terrific today
doesn't mean it will be down the road. One of the largest insurance failures in recent history
was a company called Executive Life. That company enjoyed top of the line ratings by some of the
rating agencies – just until the time it went under.

FreeAdvice.com: What are some of the limitations with long term care policy
limits?

Gerry Goldsholle: From an underwriting point of view, the insurance company wants to
insure people that are in good health. It does not want to insure people that are already sick
because those people are likely to file claims sooner and that means they don't make money on
those policy holders.

They look for people who are pretty healthy among the general spectrum of a population and they
price for certain disabilities and conditions they feel are more likely to lead to an early
claim. For example, if someone has a tendency for high cholesterol, which may suggest a greater
potential of stroke and therefore a triggering of the conditions requiring payment of benefits,
they may price premiums higher or not issue a policy at all.

Insurance companies also know that people who tend to buy far more insurance than is reasonable
for somebody in their circumstance are not good risks as they may be hiding something that the
insurance company may not be able to pick up on.

FreeAdvice.com: What other areas should consumers be aware of when purchasing a
long term care policy?

Gerry Goldsholle: Waiting periods for benefits to begin, and more significantly, how
long the benefits continue after they kick in. They are CRITICALLY important aspects of any long
term care insurance policy.

Of the two, WHEN benefits begin is far less important than HOW LONG they continue. In theory,
long term care policies could start paying benefits day one, so that the insured person in need of
long term care could start collecting benefits the day he or she required sufficient assistance
with activities of daily living to qualify for long term care benefits and/or incurred covered
expenses

Policies almost always require some delay between qualification and the date benefits begin.
That makes sense from both a pricing and practical standpoint. Absent a sudden event, such as a
disabling stroke, there often is some gradual decline in the ability and that can raise questions
of proof.

Long term care policies typically provide for at least a 30-day waiting period – after the
insured person is no longer able to engage in a sufficient number of activities of daily living,
such as the ability to bathe or care for themselves. However, a 60-day waiting period, a 90 –day
waiting period, a 120-day waiting period, or a 6 months or a year waiting period will reduce the
premium, often dramatically. The longer the waiting period, the lower the premium should be,
because the insurance company is not paying out on the first dollar. So, a waiting period helps
people significantly reduce premiums.

The second point is to find out how long the insurance company will be paying benefits? For
example, if the insurance company agrees to pay benefits for up to a maximum of two years from the
date the long term care insurance benefits start, it has significantly limited its potential
exposure. On the other hand, if the long term care insurance company agrees to pay benefits for
up to five years, it's providing two and a half times greater possible exposure. If it provides
lifetime benefits, the insured could have a much longer benefit pay out period and therefore the
long term care company has to charge a greater premium.

Most people would be far better off having a longer waiting period before the long term care
insurance benefits begin and a much longer duration period for the length of time that benefits
are payable. Therefore, I would suggest that most people consider a six month waiting period, but
have the benefits payable for life.

The danger that people face is they might have a stroke or develop Alzheimer's disease
rendering them disabled for as long as they live – and sometimes that's a long time – during which
long term care is required. That could be a significant financial catastrophe.

FreeAdvice.com: What about claims denials?

Gerry Goldsholle: If you have a long term care policy and become disabled so that
you qualify for benefits, it's time to call in the experts. Some lawyers will assist the person
seeking benefits on how to submit the claim for a relatively small up-front fee. It's better to
get the claim approved in the first instance than to sue later. They'll charge an hourly fee, but
it may be the best and most valuable advice you ever got.

If the insurance company denies long term care benefits, you'll definitely need a law firm that
knows long tem care insurance operates, and can, if your claim is eligible, get you the benefits
you are entitled to.

FreeAdvice.com: How much would you say word of mouth is worth when buying a long
term care policy?

Gerry Goldsholle: Very little. In fact, almost zero. Anecdotal information and word
of mouth from friends and family is usually of very, very limited value because the friend
typically has had very little experience with long term care insurance. Sure, if a friend has had
a bad experience with the long term care company, it makes sense to be very cautious. But a good
experience means less. With any particular company or product, a friend's experience is typically
not entitled to great weight. Complaint records with a state insurance department based on the
number of complaints per policies issued, that's more meaningful.

FreeAdvice.com: Thank you for the excellent advice.

Gerry Goldsholle: You're welcome.