Editor’s Note: John Robinson, aka JR, is not only one of the most astute retirement planners in town, he’s one of the few local financial pros with a national profile. He’s become an authority on Genworth Long Term Care Insurance and was extensively quoted in a recent NY Times article, Difficult Choices for Some Long-Term Care Policyholders.
In short, it’s a jungle out there for Boomers who have invested in this vehicle only to find their premiums have dramatically risen and their policies have morphed into bureaucratic nightmares. JR once again zeroes in on this byzantine subject for Hawaii Reporter, providing much needed advice and clarity for Genworth policy holders.
*************************
Over the past few years, I have provided consulting guidance to close to a hundred Genworth (formerly GE) long term care insurance policyholders. In every instance, the impetus for reaching out to me has been the receipt of an ominous letter from Genworth informing policyholders of various options they have to restructure their policies pursuant to a court- approved class action settlement offer and disclosing to them their plans for future major premium increases.
Many of the people who contacted me have paid premiums for ten to twenty years or more and are reaching out in panic and desperation. The root cause of their angst is not so much the potential for premium increases as it is the informational asymmetry that exists between Genworth and its policy holders. The letter they receive forces them to accept incredibly important potentially life and wealth altering policy adjustments without the knowledge base necessary to make rational informed decisions.Â
Leveling the Informational Playing Field
To help level the playing field, I have compiled a list of eight important pieces of information Genworth LTC policy holders should know before accepting any of the offers presented in the Genworth notification letter.
- Most policies have a 45-day grace period. Don’t feel pressured by the response date given in the Genworth settlement options notification letter. It is always safest to verify, so just call Genworth Customer Support at 866-234-9237 to confirm.
- The settlement options provided in the Genworth letter are not your only restructuring options. In fact, they tend to be the policy structures that most benefit Genworth and the law firms that brought the class action. Most policyholders I have met are unaware that Genworth LTC policies usually permit policyholders to amend their benefits any time.
- Read the long paragraph with bold print on the first page of the letter carefully and use it to inform your decision-making. This paragraph discloses the ungodly percentages that Genworth plans to raise your premiums. It serves two purposes for Genworth. First, it is ostensibly presented to comply with the disclosure issue that was at the heart of the lawsuit. Its second unstated purpose is to terrify policyholders into bailing on the contracts. Policyholders should also know that the percentages listed (sometimes as high as 400% or more) represent the total amount of premium increases Genworth estimates it needs to break even on the policies in that particular policy group in that state over the anticipated duration of the policy class. In most cases, these increases will be requested from the state insurance commissioners incrementally over a period of many years rather than implemented in one fell swoop.
- Cast a wary eye on the cash-back settlement options. If you call Genworth Customer Support to restructure your contract, the phone reps will likely caution that any structure you choose outside of the settlement options will not give you any cash back. What they won’t tell you is that the ongoing premiums on the cash-back options are often as much as twice what you would pay if you restructure on your own.
- The settlement options are irrevocable. Once you have made your election you cannot make any more changes to the policy. That is not the case if you choose a structure that is not one of the settlement options.
- If you qualify for benefits under the policy, in most cases you do not need to pay premiums anymore. I have encountered three policyholders this year who qualified for benefits but were thinking of dropping the policies because they could not afford the premium increases. In all three instances, the policyholders had been formally diagnosed with Alzheimers, but had not filed claims because they did not need full-time custodial care. They did not realize that part time custodial care for as little as a couple days a week was sufficient to trigger the waiver of premium provision.
- Your policy can last much longer than the contractually stated benefit period. The benefit period is the amount of time the policy will last from the time the maximum monthly or daily benefit begins paying without interruption. The benefit period can last much longer if care is only needed on a part-time basis and/or less than the full amount of the daily/monthly benefit is needed.
- Be aware of the maximum limits of your state’s insurance guarantee fund for long-term care payments. Most states’ insurance guarantee funds allows for benefits claims to be paid if the company that issued the long term care policy should fail. While I do not know the likelihood of Genworth failing, its C+ bond rating suggests that insolvency is a possibility. If the size of the benefit pool in your Genworth policy is far greater than the guaranty fund limit in your state, you may wish to scale back your policy.
Additional Resources
Here are links to other articles I have written on this topic over the past few years:
3 Villians, No Heroes – The Genworth Long Term Care Insurance Saga
Should You Accept a Genworth Long Term Care Insurance Settlement Offer?
What if the Company that Issued my Policy Fails?
John Robinson is the founder and owner of Financial Planning Hawaii and Fee-Only Planning Hawaii. He may be reached at jr@fphawaii.com.