General Provisions of Long Term Care Policy

The Contract

The provisions in the sample long term care insurance policy clearly state the specific conditions under which benefits will not be paid. Most policies contain provisions similar to those outlined below.

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This Policy, with any Riders, endorsements and written application attached hereto, make up the entire contract.

The provisions of this Policy must be read as a whole. For example, the Limitations and Exclusions apply to all Benefitsin the Policy.

COMMENT: This entire contract provision grew out of abuses by some insurance companies that incorporated by reference into their policies provisions from other documents. Insureds had little means of learning about the incorporated documents and were sometimes harmed by them. The entire contract provision guarantees to the insured that the Policy and the documents attached to the Policy (riders, endorsements and the application) make up the entire contract and that there are no hidden documents that affect the insurance contract.

Another important purpose of the entire contract provision is to ensure that you, the insured, receive a copy of the policy application. If you discover that information contained in the policy application is incorrect, you may then contact the insurer. Moreover it forecloses an argument that could be made by the insured that he/she had no knowledge of the application misstatements.

These days insurers almost always attach a copy of the application to the policy. More importantly insurance companies cannot ordinarily use the misstatements in the application to rescind coverage if the application is not attached.

Assignment; No Cash Value; Premium Refunds

The provisions in the sample long term care insurance policy clearly state the specific conditions under which benefits will not be paid. Most policies contain provisions similar to those outlined below.

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The Benefitspayable under the Policy may only be assigned after a loss.

COMMENT: The purpose of this provision is to make clear that the only kind of assignment that the insurance company will recognize is one where the insured, after medical expenses are incurred, assigns the insurance benefits due the insured for those expenses to the doctor, hospital or other service provider for the services provided. Assignment of benefits in this way is a very common practice as a way to provide for direct payment by the insurance company to the service provider and save the insured that extra step.

Another life insurance policy cash values and/or death benefits can be assigned in advance of a claim being incurred. Most health and long term care insurance policies will only allow for assignment of benefits after expenses have been incurred for the sole purpose of paying service providers.

The Policy has no cash surrender value or other money that can be paid, assigned, borrowed or pledged as collateral for a loan.

COMMENT: Here again, life insurance policies that have cash values, or something equivalent to it, can be assigned to a creditor in connection with a loan as security for that loan. This policy has no cash values that could be assigned in such a way.

Any refund of unearned premiums due at Your death, or at cancellation of this Policy, or as a result of your Policy being paid-up, will be paid to you, or to your estate at your death. Any other refund of unearned premiums shall be, at Our option, applied against future premiums or applied to increase future Benefits.

COMMENT: The only time unearned premium could be applied against future premiums or to increase future Benefits is if, for example, you paid an annual premium and then part way through the year decided to drop a rider or reduce one of your benefits before the entire year's premium had been used. You would then have more premium for that year than is required for the remaining insurance coverage you have. In that case, the insurance company is saying that it could, at its discretion, apply that unearned premium against future premiums or to increase future Benefits instead of refunding it to you.

Facility of Payment

The provisions in the sample long term care insurance policy clearly state the specific conditions under which benefits will not be paid. Most policies contain provisions similar to those outlined below.

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Any amounts due toYou at Your death, as provided in the Payment of Claims provision or Premium Refunds provision of this Policy, that is not more than $1,000, may be made to anyone related to You by blood or marriage whom We find entitled to payment. Any payment made by Us in good faith will fully discharge Us to the extent of the payment.

COMMENT: This provision is designed, as its title suggests, to facilitate the proper and expeditious payment of small amounts of final Benefitsdue or premium refund due at your death when it might otherwise be difficult for the insurance company to sort out exactly who has the ultimate priority claim to the payment.

For example, if you, the insured, paid an annual premium on your policy and then died 4 months later, ordinarily your estate would be entitled to the return of the unearned premium for the remaining 8 months. But, if there are complications with the estate that have the potential to last for many years, requiring the insurance company to hold the money for all that time, this provision allows the company to get the money off its books (if it is $1,000 or less) by paying it to anyone related to you by blood or marriage whom the insurance company deems entitled to payment. The insurance company does not have to wait for the probate court to sort things out regarding the estate.

Limitation on Representative's or Other Person's Authority

The provisions in the sample long term care insurance policy clearly state the specific conditions under which benefits will not be paid. Most policies contain provisions similar to those outlined below.

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No sales representative, agent, broker or other person except Our President, Secretary or a Vice President may:

  1. make or change any contract of insurance; or
  2. change or waive any of the terms of this Policy.

Any change or waiver must be in writing and signed by Our President, Secretary or a Vice President.

COMMENT: This is an important provision. It is giving you, the insured, advance warning in writing that the only valid changes to your insurance contract must be signed by the company President, Secretary or a Vice President. In other words, whatever may be promised to you by a sales representative, even if it is in writing under the letterhead of the insurance company, is not a valid change in your contract – and the insurance company wants you to legally agree to that understanding by making it a part of your insurance contract.

This provision is designed to stop the argument that you believed your agent, acting for the company, had authority to make the contract change and you relied on that to your detriment – and now you want to blame the company. This contract provision makes it clear to you that the agent does not have such authority regardless of how it may look to you.

Statements Made by You Relating to Insurability

The provisions in the sample long term care insurance policy clearly state the specific conditions under which benefits will not be paid. Most policies contain provisions similar to those outlined below.

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Any statement made by you in the application will be deemed a representation and not a warranty. No such statement made by You which relates to insurability can be used by Us to:

  1. contest the validity of our Policy; or
  2. deny an otherwise valid claim,

unless the application was signed by you and a copy of the application has been attached to Your Policy.

If Your Policy has been in force for less than six (6) months, We may contest the validity of Your policy or deny an otherwise valid claim upon a showing of misrepresentation by you that was material to the acceptance for coverage.

If your Policy has been in force for at least six (6) months but less than two (2) years, We may contest the validity of your Policy or deny an otherwise valid claim upon a showing of misrepresentation by You that is both material to the acceptance for coverage and which pertains to the condition for which Benefitsare sought.

If Your Policy has been in force for two (2) years or more, We may contest the validity of Your Policy or deny an otherwise valid claim only upon a showing that You knowingly and intentionally misrepresented relevant facts about Your health.

COMMENT: Statements you make on your application are regarded as representations, not warranties. A warrantyis a statement guaranteed to be true in all respects. If a warranted statement is untrue in even a trivial respect, it can provide sufficient grounds for the insurance company to void the contract.

For example, an incorrect statement as to your age on the application, if regarded as a warranty, would be grounds for the insurance company to void your contract. But since it is regarded as a representation, the insurance company must show that it was material to the risk it assumed before it can consider voiding your contract of insurance. Rarely can the insurance company show that misstatement of age as material to the risk.

Unlike warranties, if you make a false statement of fact on your policy, that is considered a misrepresentation. Then the next question is whether that false representation is material to the insurer's risk. A material factis one that, if known to the insurance company at the time of application, would have caused it to refuse to enter into the insurance contract on the terms in which it did so. This means that, if it had known the true facts, the insurance company would have denied the application, issued the insurance policy at a higher premium, waited for a period of time to see if the condition improved, excluded certain risks or taken some action other than acceptance of the application and issuance of the coverage.

Misrepresentations usually relate to medical history. However, other misrepresentations can be material. For example, misrepresentations of non-smoking status, participation in hazardous activities, work status, income, drug use, and other insurance in force have all been found by the courts to be material.

This policy provides for three types of misrepresentation, based on time period:

  1. If the policy has been in force for less than 6 months, the insurance company can void your policy if your misrepresentation is material.
  2. If your policy has been in force between 6 months and 2 years, it can void your policy if your misrepresentation is material AND the misrepresentation pertains to the condition for which Benefits are sought. For example, you do not tell the insurer that you have a history of strokes, then you have a stroke that so incapacitates you that you cannot perform the normal Activities of Daily Living.
  3. If the policy has been issued for 2 years or more, the insurer can only void the policy if it can prove fraud – that you knowingly and intentionally misrepresented relevant facts about your health.

In the first two instances, you may have knowingly and intentionally misrepresented relevant facts, but the insurance company does not have to prove that you intended to do this. Not surprisingly, intent to deceive (fraud) is very difficult to prove. But the possibility for success does exist.

Misstatement of Age

The provisions in the sample long term care insurance policy clearly state the specific conditions under which benefits will not be paid. Most policies contain provisions similar to those outlined below.

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If Your date of birth is not correct as shown on Your application, an adjustment in premium and/or amounts of coverage may be made, at Our option, based on the correct information.

COMMENT: This is one instance where a misrepresentation does not operate to give the insurance company the right to void the insurance policy. It is not considered material. In theory, it could be if the age differential was great enough, but since there is an agent present at the taking of the application, it is presumed that the agent would question it before proceeding further.

Legal Actions

The provisions in the sample long term care insurance policy clearly state the specific conditions under which benefits will not be paid. Most policies contain provisions similar to those outlined below.

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No legal action may be brought until sixty (60) days after written proof of claim has been given. No such action may be brought after five (5) years from the time written proof of claim is required to be given.

COMMENT: The 60 days provides a "cooling off period" to reduce the number of frivolous lawsuits that might otherwise be filed that both parties would regret. The 5 years provides a reasonable period of time within which to file a suit, beyond which it becomes very difficult for the parties to do the necessary investigation to establish the facts.

Termination by Insured

The provisions in the sample long term care insurance policy clearly state the specific conditions under which benefits will not be paid. Most policies contain provisions similar to those outlined below.

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You may cancel this Policy at any time by written notice delivered or mailed to Us, effective upon receipt of such notice or on such later date as may be specified in the notice. In the event of cancellation or death of the Insured, We will promptly return the unearned portion of the premium paid. The earned premium shall be computed by the use of the short-rate table last filed by Us with the state official having supervision of insurance in the state where You resided when the Policy was issued. Cancellation shall be without prejudice to any claim originating prior to the effective date of the cancellation.

COMMENT: Your may cancel your policy at any time, but your notice will only be effective if it is done in writing. Cancellations occur at month end, under the following circumstances:

  1. If you cancel immediately without specifying a date, your policy will be cancelled on the last day of the Policy Monthin which your request is received by the insurance company.
  2. If you specify a future date to cancel, the cancellation is effective on the last day of the Policy Monthof your request.
  3. If you request a date that has already passed, the cancellation will be effective as of the last day of the Policy Month in which your written notice is received by the insurance company.

If you have a claim in progress when you request cancellation, it will be processed because the policy was not cancelled until after the claim was incurred. Once you are eligible for Benefits, no further premiums are due until you are not longer eligible for Benefits. The policy cannot be cancelled retroactively, that is with an effective date prior to the date of receipt of the written notice by the insurance company.

Termination of Policy

The provisions in the sample long term care insurance policy clearly state the specific conditions under which benefits will not be paid. Most policies contain provisions similar to those outlined below.

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Your Policy will remain in force and will not terminate because of Your age or a deterioration in Your mental or physical health. Your Policy will only terminate upon:

  1. Our receipt of a written request to cancel the policy (the policy will terminate on the last day of the Policy Monthin which such request was received, subject to any nonforfeiture coverage);
  2. Payment of Your Total Lifetime Benefitunder the Policy;
  3. Policy Lapse(subject to any nonforfeiture coverage); or
  4. Your death.

COMMENT: Your health cannot cause your policy to terminate. There are only 4 ways your policy can terminate:

  1. You request cancellation.
  2. You reach the Total Lifetime Benefit under the policy. Not all long term care policies have a Total Lifetime Benefit limitation. If you are willing to pay a higher premium, you can buy a policy without a Total Lifetime Benefit, in which case you are only subject to Maximum Daily Benefit Amountlimits. They do not terminate your policy.
  3. You stop paying the premium and the policy Lapses.
  4. Death

If you have purchased a rider that provides nonforfeiture benefits, your policy may remain in effect for some specified period of time after the normal termination date based on the terms of the rider. Such a rider would typically provide you with the option to use the nonforfeiture values (cash values) that have accumulated in the rider to pay premium to continue the policy in force with the same benefits for a short period of time or continue it in force for a longer period of time with reduced benefits.

Conformity with State Statutes

The provisions in the sample long term care insurance policy clearly state the specific conditions under which benefits will not be paid. Most policies contain provisions similar to those outlined below.

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Any provision in this policy which, on the Original Coverage Effective Dateof this Policy, conflicts with the laws of the state in which You reside on that date, is amended to meet the minimum requirements of such laws.

COMMENT: All insurance policies are filed for review and approval with the insurance departments of the states in which they are to be sold. The insurance department employees, for the most part, do a very thorough review of each policy filed to make sure that all of the policy provisions comply with the laws and regulations of the state. But they are human and they are under pressure to review and approve as quickly as possible. There are occasions when they may miss something. In those situations the above provision provides protection for the consumers.

Standard of Time

The provisions in the sample long term care insurance policy clearly state the specific conditions under which benefits will not be paid. Most policies contain provisions similar to those outlined below.

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12:01 A. M. in the time zone in which You reside.

Notice

The provisions in the sample long term care insurance policy clearly state the specific conditions under which benefits will not be paid. Most policies contain provisions similar to those outlined below.

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When you write Us, please give us your name, address and Policy Number. Please inform Us promptly of any changes. We will write to You at Your last known address.

Checks, drafts or money orders may be drawn on a U.S. bank to the order of [legal name of the insurance company]. They are received subject to the condition that they may be handled for collection in accordance with the practice of the collecting bank or banks. If We do not receive the full amount of any check, draft or money order, it will not constitute a payment. All payments are to be made in U.S. currency. We may refuse to accept any payments made in a manner that applicable law requires Us to refuse (such as any large cash payment made without information that We are required by law to obtain).

COMMENT: It is important to remember that partial payment of premium is not considered to be payment. Years ago, insurance companies would accept partial premium payments and attempt to apply it on a pro rata basis. For example, if you paid one-fourth of an annual premium, they would give you three months worth of coverage. Because this approach can be ambiguous, companies no longer do this. Courts agree that accepting partial payments creates an unclear contract.