What Are Long-Term Care Insurance Regulations & How Do They Protect Policyholders?

Many Americans do everything they can to ensure they live happy, healthy lives as they age. But unfortunately, health isn't always something everyone can control. 

That's why many people may turn to Long-Term Care Insurance as they grow older. LTC Insurance can provide peace of mind through easy access to quality care. 

But some people may have concerns about the safety of Long-Term Care Insurance. What laws govern coverage? What's preventing companies from raising premiums or canceling policies? 

If you share those concerns, then you're in the right place. Today we're going to explain Long-Term Care Insurance regulations and guidelines. 

LTC News works with Long-Term Care Insurance specialists to provide you with accurate information. We want to help you understand how coverage works and the laws that affect policies. We'll break down these concepts as simply as possible. 

In this article, we'll discuss three vital pieces of regulation. Then we'll explain why these rules are important and how they protect you.

Which Long-Term Care Insurance Regulations Affect You?

First things first, we'll start with some background information. Then we'll break down the specific regulations that could affect you and your policy. 

Companies introduced Long-Term Care Insurance in the 1970s and expanded during the 1980s. LTC Insurance looked different back then. 

Back then, there were fewer industry regulations. Insurance companies had a lot of freedom and flexibility with policy design and pricing. Because of this, many past Long-Term Care Insurance policies lacked important consumer protections.

In the '80s, the U.S. government began recognizing these problems and issued guidelines and regulations for the LTC Insurance industry. Their new rules were tougher on insurance companies. Federal and state governments created new standards for what policies should look like and how they should function.

In the section below, we'll break down three essential regulations:

• Section 7702(b), which distinguishes regulated and unregulated policies and offers tax incentives
• The Model Act & Regulation, which expands protections for policyholders and makes coverage safer and fairer for policyholders
• Rate Stability Rules, which prevent excessive premium increases and prices, which keep coverage affordable. 

These regulations shape Long-Term Care Insurance as we know it today. Later in the article, we'll discuss how these regulations protect you.

Regulations That Keep Coverage Consistent: Section 7702(b)

Section 7702(b) defines tax-qualified Long-Term Care Insurance policies. It explains what these policies should and shouldn’t cover and how they should provide coverage. 

Section 7702(b), sometimes called Title 26, is a part of the Internal Revenue Code of 1986. The Internal Revenue Code primarily focuses on federal tax laws.

Key Points of Section 7702(b) include:

• Consumer protections 
• Minimum standards for policies
• Nonforfeiture rights
• Guaranteed renewability
• Tax incentives and deductions

How Does Section 7702(b) Affect You?

Section 7702(b) created a golden standard for Long-Term Insurance policies. Policies that don't meet these standards are not tax-qualified or legally considered Long-Term Care Insurance. 

Qualifying LTC Insurance policies are free from predatory and misleading business practices. They're safe and predictable, and tax incentivized. To learn more, check out LTC News's article on the latest tax deductions and incentives. 

Qualified policies can never just end, and your premium can never go up without warning. All increases have to get the state's approval and never happen on an individual policy basis. As soon as you meet the legal definition of needing care, your policy will cover it. 

Without Section 7702(b), insurers would have the option to define LTC Insurance policies on their own. Coverage could vary drastically between providers and policyholders. 

Insurance companies would also have the option to cancel your policy or raise your premium right after you file a claim. Others could make it difficult to access your policy's benefits. 

Because of Section 7702(b), Long-Term Care Insurance is more consistent across insurers and policyholders. Policyholders no longer need to worry about sudden policy changes after filing a claim.

Guidelines That Define LTC Insurance Policies: The Model Act & Model Regulation

The Long-Term Care Insurance Model Act and Model Regulation are guidelines designed by the National Association of Insurance Commissioners (NAIC). These guidelines expand the definition of Long-Term Care Insurance to include more protections.

The Model Act and Model Regulation aren't technically laws. The NAIC doesn't have the legal authority to enforce them. However, Section 7702(b) states that policies must follow the Model Act and Model Regulation guidelines. This allows the government to enforce the Model Act and Model Regulation as laws.

The NAIC aims to regulate insurance and make it safer for the public. Their guidelines for Long-Term Care Insurance policies added a lot of new requirements for companies. Key points include:

• Regulations for benefit triggers
• Consumer protections
• Free-look period and return policies
• Guaranteed renewability
• Inflation protection
• Minimum and performance standards
• Contingent nonforfeiture rights
• Outline of coverage
• Premium stability and protection from premium increases
• Requirements for insurance companies and sales representatives
• Protection from unintentional lapse

Don't worry if you feel confused or overwhelmed reading this list. We'll break each of these down later in the article. If you're ready to dive in, click here to skip ahead to that section now. 

How Does The Model Act & Regulation Affect You?

The Model Act and Regulation affect you by adding protections to coverage. To be more specific, they prevent unfair or deceptive business practices and add consumer protections. One of many examples of consumer protection is benefit triggers. 

Benefit triggers define how you access your benefits when you need care. There are two paths toward accessing benefits, which are easy to follow. This means everyone can access benefits easily, regardless of their insurer. We'll go into more detail on benefit triggers later in this article. 

The Model Act & Model Regulation also set the standard for what policies should include and how they should act. This includes everything from what policies need to cover, how much they should cost, and how they should process claims. These guidelines give everyone a clearer idea of what is and isn't covered by their policy. 

On top of the policies themselves, these regulations also provide an outline for state insurance departments to follow. This helps the government regulate policies and, in turn, makes coverage safer for policyholders. 

Coverage would be full of gray areas without the Model Act and Regulation. These documents replaced the questions around coverage with fair and safe guidelines. The result was effective and affordable long-term care coverage as soon as you need it. 

Guidelines That Prevent Excessive Premium Increases: Rate Stability Rules

Rate Stability Rules are guidelines for pricing Long-Term Care Insurance policies. These rules prevent significant and sudden premium increases. They also ensure affordable premiums by keeping each company's income-to-expenses ratios in check. 

Rate Stability Rules are necessary because of Long-Term Care Insurance's unstable premium history. In the past, some policies lacked pricing rules. Many companies had lenient underwriting practices and underpriced their policies. 

Because of their misjudgment, some insurance companies didn't have enough money to pay out policyholders' claims. As a result, companies raised premiums. 

As you can imagine, policyholders weren't happy. And this inspired the government to create Rate Stability Rules. These rules changed the way companies price their products and policies in the first place. 

These days, insurance companies cannot plan for their premiums to increase. They must price all premiums with the intention of remaining stable for the life of the policy.

Here's how Rate Stability Rules work:

1. Insurance companies must pay out at least 58% of initial premiums as benefits. If companies raise their premiums, 85% of the increase must go to paying out benefits. Rules like these prevent insurance companies from using profit as a reason to increase premiums.

1. Insurance companies must set their rates cautiously. They'll face penalties if they need to increase rates in the future because of original negligent pricing. As a result, premium pricing has become more conservative and stable.

1. Premium prices go through a rigorous filing process to ensure long-term stability. Actuaries and state insurance departments must review underwriting, actuarial data, and premium prices before companies can market or sell policies at those prices. 

1. On top of the extra planning, insurance companies must also include a margin of error in their pricing. This margin should help any unpredictable future situations. Under Rate Stability Rules, premiums should rarely or never increase.

1. If insurance companies do raise premiums, they must get approval from state insurance departments first. Insurance companies need to prove increases are actuarily necessary to pay claims. The process is intense and guarantees policyholders very stable premiums for the future.

How Do These Regulations Protect You?

Regulations affect all federally qualified Long-Term Care Insurance policies. However, this doesn't mean they protect all long-term care-related insurance products. 

Some policies can look similar to Long-Term Care Insurance without meeting federal guidelines. These policies have different benefits than we're about to describe below. 

Your policy will say if it meets federal guidelines or not. It's important to determine whether it does, as it dramatically impacts your policy's usability. 

Below we'll break down the most important rights that come with every policy. These rights protect you regardless of your age, gender, location, or any other factors.

Benefit Triggers

Benefit triggers are how you access your policy's benefits. Think of them as a provision you must meet before your company approves your claim. 

Benefit triggers are the same across all insurance companies and states. Insurance companies cannot refuse to pay your claim if you meet the benefit triggers.

Your policy should list the benefit triggers for your specific plan. Generally, these will look similar to the ones listed below. You only have to meet one of the triggers below, not both.

Two examples of benefit triggers include:

• Standby or hands-on help with at least two activities of daily living
• Supervision due to cognitive decline or impairment—see your policy or outline of coverage for exact verbiage

Long-Term Care Insurance policies cannot require policyholders to have a terminal condition or need permanent care to fulfill benefit triggers and access benefits. 

Sometimes policies also include different benefit triggers. You should review your policy documents or talk to a Long-Term Care Insurance specialist for more information about your policy's benefit triggers. 

Free-Look Period & Return Policies

After you're approved for Long-Term Care Insurance and receive your policy, you'll have a 30-day free-look period. During these 30 days, you can evaluate your policy. 

You can determine if Long-Term Care Insurance is right for you at that time. If you decide it’s not a good fit, you can get a full refund on your first premium. 

All federally qualified policies have this feature, and you should be able to find it in the beginning sections of your printed policy. 

Guaranteed Renewability

Guaranteed renewability means that insurance companies can't cancel your policy or change the contract terms. There are only two circumstances under which your insurance provider could cancel your policy: 

• If you stop paying your premium for an extended period
• If you exhaust all the benefits within your policy

Your insurance provider can't cancel your policy or change your premium for personal reasons. Personal reasons include age, gender, race, or other personal circumstances. 

Once you already have a policy, your insurance provider can't cancel it because of your health. Insurance companies can refuse to insure you in the first place because of your health. However, they can never take away coverage after you're approved and your policy begins. 

Insurance companies should offer your policy at the same premium each year. However, traditional Long-Term Care Insurance policies aren't guaranteed the same premium. 

As we mentioned above, there's a lengthy review process involved in raising premiums. Even if your premium increases, it won't rise by much and certainly won't rise frequently. You'll also have adequate notice of the increase with the option to reduce coverage to keep your premium the same. 

This is different from your premium raising after you buy more benefits. Some policies allow you to increase the benefits within your policy each year, and doing so will raise the premium. This is also different from inflation benefits which we'll discuss below.

Inflation Protection

Inflation protection periodically increases the amount of money within your policy. Inflation protection helps balance the rising cost of long-term care and lets you get the most value from your policy. 

There are a few inflation protection rules for insurance companies to follow, including:

• Insurance companies must offer at least a 5% compound inflation rider 
• Insurance companies must offer the option to increase benefits without proof of insurability as long as the offer hasn’t been declined before
• Inflation benefits continue indefinitely unless the policyholder chooses to end them
• Insurance companies must offer inflation protection to all policyholders
• Insurance companies must disclose how inflation protection affects premium prices

RELATED:What Are Long-Term Care Insurance Riders?

Minimum & Performance Standards

Minimum and performance standards define how policies work. These are some of the miscellaneous consumer protections associated with Long-Term Care Insurance. 

Some of the most notable standards include:

• Policies should only cover long-term care services
• No cash surrender—in other words, traditional Long-Term Care Insurance policies shouldn’t act as loans. However, this doesn’t apply to hybrid Long-Term Care Insurance policies, which do offer cash surrenders 
• Elimination periods should be once per lifetime, not once per claim or occurrence 
• Insurance companies can’t limit benefits to certain health conditions
• Insurance companies must send a letter explaining denied claims within 60 days
• Insurance companies can’t practice post-claim underwriting—in other words; they can’t change or cancel your policy after you file a claim
• Policyholders have the right to reduce coverage at any point for any reason
• Policies that offer coverage of home and community-based services must not exclude or limit these services (one exception is care providers must have proper licenses according to local laws) 

Contingent Nonforfeiture Rights

The contingent nonforfeiture benefit lets policyholders continue coverage on a reduced basis if they can't pay their premiums. This only happens after their premium increases above the specific threshold listed in every policy.

The total amount of premiums you've paid over your life determines the amount of reduced coverage you'll get each month. 

In some cases, you may be better off reducing your benefits by a small amount to keep your premium the same instead of using the contingent nonforfeiture benefit. For more information, consult with a Long-Term Care Insurance specialist. 

Outline Of Coverage

By law, insurance professionals must provide an outline of coverage to any person they help with LTC Insurance. This helps potential policyholders learn about Long-Term Care Insurance coverage before they apply for a policy.

Outlines of coverage can include:

• Benefits and features within the policy
• Benefit triggers
• Elimination period information
• Policy limitations
• Return policy
• Descriptions of how the cost of care relates to benefits
• Tax-qualified disclosure 

You should talk to your insurance professional if you’re missing any of the items listed above. 

Premium Stability & Premium Increases

Insurance companies must follow a rigorous procedure when they set premium prices and increases. Each insurance company must gain the approval of state insurance departments and independent actuaries before selling new policies or raising premiums.

An independent actuary must also certify several items before an insurance company can increase its premiums. To increase premiums, an actuary must verify that:

• The increase is necessary to cover the cost of claims
• Profit is not a reason for the increase
• They don't expect any future increases after the current increase
• The insurance company is experiencing more claims than anticipated, and current premiums don’t cover the cost
• Increases won’t raise the total cost higher than recently-issued policies’ premiums. For example, insurance companies can’t raise the cost of a policy sold in 1998 higher than a policy sold in 2024
• An increase is in the best interest of both the insurer and policyholders

Theseregulations make it harder for insurance companies to raise premiums. They also force insurance companies to plan ahead to avoid future increases. 

Requirements For Companies & Sales Representatives

Long-Term Care Insurance companies and professionals must follow strict rules when discussing coverage. They have to use friendly sales practices and have their client's best interests in mind. 

For example, it's illegal for agents and insurance companies to lie, mislead, or misrepresent. It's also illegal to use high-pressure sales tactics to encourage people to buy a policy, add-on, or any other feature. Agents and insurers must be honest, open, and direct when discussing with potential policyholders.

Unintentional Lapse

A lapse occurs when coverage suddenly ends due to an unpaid premium. Unintentional lapse rules protect cognitively impaired policyholders from accidentally ending their policies.

The unintentional lapse feature helps those with dementia, Alzheimer's, or severe mental illnesses. Individuals with cognitive decline may find it hard to remember to pay their premiums. It's not a conscious choice for many who live with cognitive disorders. 

Whenever an ill policyholder misses a payment, they automatically receive a buffer period before they lose their policy. Here are a few things insurance companies must do to prevent unintentional lapses:

• Send a notice to the policyholder before a lapse
• Send a notice to a designated third party before a lapse
• Provide a 60-day buffer period between a missing payment and a lapse

These buffers help those suffering from dementia or cognitive impairment keep their coverage. Sending a notice to a designated third party may also help the policyholder's loved ones be more aware of the situation. It gives them a chance to consult the policyholder and figure out what's going on. 

There's also an option to get policies reinstated after a lapse. To do this, the policyholder or their doctor must provide evidence to prove they weren't in the right state of mind at the time of lapse.

If they can prove they were suffering from memory loss or cognitive disabilities, their insurer will reinstate the policy, and coverage will continue as normal. Policyholders are still responsible for future and any missed premiums. The designated third party is not responsible for paying any missed premiums.

Why Are Long-Term Care Insurance Regulations Important?

Section 7702(b), Model Act, and Model Regulation have changed how Long-Term Care Insurance works today. These regulations provide many consumer protections to anyone with a federally-qualified policy. These guaranteed features can help you and your loved ones feel confident about your coverage. 

Consider meeting with a specialist if you have more questions after reading this article. LTC News has a tool that puts a network of licensed Long-Term Care Insurance specialists at your fingertips to help you find a specialist who meets your needs. 

Here are a few more resources to help you continue learning about Long-Term Care Insurance: 

• Will Long-Term Care Insurance Premiums Increase? – As we discussed in this article, regulations prevent insurance companies from increasing premiums for profit. But what other reasons could premiums increase, and is your premium at risk? This article dives deeper into when and how premium increases can occur. 
• What Are The Components Of A Long-Term Care Insurance Policy? – Long-Term Care Insurance policies have many components to create comprehensive coverage. This resource offers a detailed explanation of all the key components of your LTC Insurance policy.