Insurance – Long-Term Care – Potential for Fraud

Insurance companies, perhaps more than any other type of company, depend upon written contracts to define the terms of their liability with their customers. Like other companies, their attorneys carefully modify their contracts to comply with laws governing the insurance industry.

However, while some types of insurance contracts are strictly regulated by law, such as Medicare supplemental policies, long-term care insurance contracts are not. There are no standardized forms of long-term care contracts, such that each policy written by a company is unique. As a result, a conscientious consumer must be aware of the potential pitfalls of various clauses in long-term care contracts, many of which are discussed in a separate article, and consumers must be aware of the potential for fraud, particularly against elderly consumers.

First, the very fact that insurance companies draft long-term care contracts on their own, with little or no input from purchasers other than the selection of certain terms, provides an opportunity for companies to maximize their gain. Of course, it makes good business sense to push governing laws as far as possible within legal bounds, but consumers should be aware that not all companies construe the law the same and that some will push these bounds further than others. That companies are responsible for drafting these contracts provides a unique opportunity for fraud. Although the majority of companies will not exploit this opportunity, some will.

Second, the commissions paid to insurance agents for selling and renewing long-term care policies is much larger than for many other types of insurance, such as automobile insurance. Commissions of 50 percent or more of the first year’s premium are not uncommon, and subsequent annual renewals often gain an agent more than 10 percent. Insurance agents, therefore, have an incentive to sell as many of these policies as possible, and consumers should therefore ensure that they do their own investigations of policy terms and companies rather than relying on agent statements. Statements that premiums will not be increased, that filing a claim is easy, or that qualifying for payment will be easy, in particular, should be verified by reading the relevant policy.

This is compounded by the fact that many members of the elderly population tend to be more trusting than those in younger generations, and they often live alone. America’s seniors should know that in this respect, others might be more apt to attempt to exploit their trusting nature, as well as the likelihood that they may have no one to consult about the purchase of long-term care insurance. Similarly, seniors should be skeptical if an agent uses scare tactics, such as exploiting a fear of financial disaster.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.