Long-term care policy lapses

I wrote this blog after reading a disturbing posting on "The New Old Age Blog" on the New York Times website.  It serves as a warning for those who have long-term care (LTC) insurance.

The blog told the story of Michael Pirron, who wanted his parents to get the care they needed as they aged. In 2001, when his father was 67 and his mother 59, he assisted them in taking out an LTC insurance policy through John Hancock. Michael Pirron was their power of attorney. His parents signed a form listing their son as the "person to contact" if their premiums were not paid or their policy was about to lapse. Their son even went to their bank and made arrangements for the premiums to be automatically paid from their checking account.

During the years that followed, the older Pirrons downsized from a home to a condominium in Virginia. Michael Pirron estimates that in a decade, his parents paid $50,000 in premiums for their LTC insurance.

By 2012, Mrs. Pirron was falling and had psychiatric symptoms. Her husband's memory was failing, and he was unable to care for her. Michael Pirron called John Hancock to see what care his parents' policy would provide.

John Hancock's answer was, "What policy?" The policies had lapsed eight months before, and it was too late to pay back premiums and get them reinstated.

His parents had received a couple of letters from the insurance company stating that their policies were going to be terminated, but they did not understand them, and their son later found them in a drawer. Michael Pirron also discovered why the bank had stopped automatically paying the premiums: Without Michael's knowledge, his father had gone to his branch of the bank to cancel automatic payments on a different insurance policy and mistakenly canceled payments to John Hancock.

John Hancock insisted that it had sent a letter to Michael Pirron about his parents' policies lapsing. He said he never received it.

A 2012 letter from John Hancock stated that the company could not reinstitute the policy because it had acted in a manner consistent with its business model and regulatory obligations. The company expressed regret for any distress its decision had caused.

Michael Pirron complained to the state insurance board but did not get very far. After talking with an attorney, he decided the fee to sue John Hancock was too high.

Instead, he went to the Virginia legislature and found a sponsor for a bill that would require LTC insurance companies to send nonpayment and policy lapse letters by UPS or FedEx to prove they had been sent. The cost would be paid by the insured persons.

When the bill came up for a vote, there was a tie—five for it and five against. Research showed that many LTC policies lapse in the first and second years. Some think insurance companies would be burdened with sending too many letters that they might end up paying for themselves. Insurance companies, however, had no outright objections to the bill. The bill may be taken up in the legislature's next session.

It is clear that the Pirrons and their son had made provisions for their care as they aged. Mr. and Mrs. Pirron ended up selling their condo at a loss and moved to a smaller apartment, where Mrs. Pirron receives care through a Medicaid program.

Families, powers of attorney and responsible parties are advised to be vigilant about LTC insurance policies. A responsible third party should keep a copy of the cover page with the company's name, insurance policy number and the address and contact information. That information should be updated frequently. If it is thought the insured individual(s) could be losing their memories, their bank(s) should be checked to ensure that the premiums are being paid.

I Advance Senior Care

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