Do You Really Need Supplemental Insurance?

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Having insurance protects you from tragic events that could otherwise devastate your finances. In that light, adding a supplemental insurance policy that fills in the gaps in your standard insurance would look like simply getting more of a good thing.

Unfortunately, that's not always the case. A recent case involving one insurance company's questionable practices emphasizes how important it is to do your homework before you buy a supplemental policy.

Earlier this week, the Massachusetts Attorney General's office announced that it had arrived at a $5.25 million settlement against the Life Insurance Company of North America. The settlement stemmed from allegations that the insurance company had used deceptive tactics to market its cancer and surgical insurance policies to World War II veterans, including exaggerating the policies' benefits, misrepresenting their coverage limits, and making false claims about premium rates.

Although the parties had previously come to a settlement last year, the insurance company's failure to meet all the conditions of the original settlement led the AG to pursue further damages.

How Supplemental Insurance Works

Supplemental insurance provides extra coverage where traditional policies fall short. Especially with health insurance, typical policies provide broad-based coverage that covers a wide range of different conditions and needs. But those often policies don't provide coverage for specific illnesses or medical procedures that might be of particular interest to you, or if they do, policy limits might mean they won't cover all of your potential costs. Moreover, while traditional health insurance covers direct costs like hospital bills and doctors' visits, it usually doesn't cover lost wages or other financial impacts that can result from an illness or injury.

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Supplemental insurance can fill those gaps, with policies available for specific types of care including cancer treatment, vision, and dental coverage, and other policies providing cash in cases of accidents, hospitalization, or disability.

But the Massachusetts case shows how difficult it can be for ordinary consumers to understand supplemental insurance.

First, it can be difficult for ordinary consumers to understand exactly who stands behind a supplemental insurance policy. Part of the confusion stems from the fact that certain types of supplemental policies -- Medicare Supplement Insurance or Medigap policies -- are specifically designed to fill coverage gaps in Medicare. The Medicare program acknowledges these supplemental policies even though they're offered solely by private insurance companies. Yet some insurance companies blur the line even further, using names that make the policies sound as if they're provided directly by the government. In the Massachusetts case, the AG's Office alleged that marketing materials to prospective customers made the policies look as if they were offered under a government program aimed at helping veterans.

How to Evaluate Supplemental Insurance

In deciding whether supplemental insurance coverage is appropriate for you, keep the following things in mind:
  • Make sure you know what benefits the policy will provide and under what conditions. Often, general descriptions of policy benefits won't include details like waiting periods for coverage to kick in, restrictions on the exact types of illnesses or injuries that qualify, or requirements you'll have to fulfill in order to claim your benefits. The worst possible result is counting on coverage that your policy doesn't actually provide.
  • Ask about how much rates can change in the future. As you get older, the risk of certain types of illnesses rises and most policies will therefore force you to pay more to maintain your coverage in future years. Too often, people can afford to pay for coverage early on but then end up having to drop their coverage at exactly the time when their risk of actually needing that coverage reaches its higher point.
  • Understand what coverage you already have. Many employers offer disability insurance as a standard employee benefit, with group rates that are often much more attractive than you'd get from an individual policy on your own. Moreover, you might be able to boost the amount of coverage you get at a cheaper cost than you'd pay to buy a separate supplemental policy. Also be sure to consider government programs like Social Security Disability Insurance, which can provide disability benefits to those who meet minimum work requirements.
Most importantly, understand that the specialized coverage that supplemental insurance offers tends to attract those who are most prone to the conditions they cover, which results in insurance companies having to charge higher premiums than if a broader spectrum of the population bought those policies. Given the very limited scope of many supplemental policies, you'll need to weigh carefully whether the chances of needing that coverage truly justify the cost involved.

Never buy supplemental insurance until you are completely comfortable in your knowledge of what it covers, how much it will cost, and whether your personal risk is high enough to justify the expense. Otherwise, an aggressive sales pitch may leave you with a product that turns out to be of little or no use to you.

7 Myths of Long-Term Care
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Do You Really Need Supplemental Insurance?

While the only sure things in life are death and taxes, it's worrying about the quality of life that can really be a buzzkill.

Roughly 70 percent of Americans over 65 will need some form long-term care at some point in their lives, according to a study by the U.S. Department of Health and Human Services.

Once you hit 65, you have a 35 percent chance of entering a nursing home. The odds that you'll have to stay there for five years? About 20 percent.

With statistics like these, it's no wonder that the idea of purchasing long-term care insurance keeps popping up. Unfortunately, if you don't purchase coverage when you're in your 50s, it may be too expensive to buy once you're in your late 60s or early 70s. And if you suffer from certain illnesses, the truth is that long-term care insurance coverage may not be available to you.

The first hurdle is getting past the hype so that you can evaluate whether you need coverage -- not everyone does. Here are seven commonly held myths about long-term care.

The fact is, the vast majority of Americans will need some sort of long-term care services as they age, particularly help with Activities of Daily Living (ADLs), including getting in and out of bed, walking, bathing, dressing, and eating.

Even if you're healthy, the aging process unfortunately includes a natural decline in eyesight, hearing, balance and mobility.

It's easy to confuse "long-term care planning" with long-term care insurance, but they're not the same. In fact, making that mistake could literally send you into bankruptcy in your senior years.

Long-term care planning means developing a personal strategy and making decisions now about how you want a range of things to be handled when you or a loved one needs long-term care services down the line.

Insurance is just one of many options people consider for covering the costs of long-term care. If you buy an insurance policy but don't plan appropriately, your care could be compromised. If you develop a plan but never buy the appropriate insurance coverage or execute an advanced care directive, living will, and powers of attorney for health care and financial matters, you could wind up leaving all of your care decisions to others without the means to pay for them.

I lost my father when he was just 49 years old. But his mother lived to be 98 and was fairly vibrant and lived alone until the last year of her life.

There's no telling when you'll need your fully-realized long-term care plan to kick in, so the sooner you plan the better off you'll be.

If you're over 50, the best time to plan is now. It will make you a more informed consumer of long-term care services and will help you stay in control of tough decisions.

Nothing could be farther from the truth. Medicare does not cover the custodial services that help with ADLs. It will cover rehabilitation, home health care and durable medical equipment as long as they're deemed "medically necessary."

Medicaid may pay for your long-term care, but you need to meet strict eligibility requirements, which differ by state and often involve extensive documentation of assets. And don't think you can simply transfer all of your funds to your heirs and then apply. There's a five year "look back" rule that will require you to document where all of your money has gone.

There may be some government help if you're a veteran suffering from a service-related disability. To check your eligibility, go to for details.

Have you priced long-term care costs lately? They're pretty darned expensive, and even with long-term care insurance, you'll be responsible for paying for some or all of the care you need.

Go to to estimate what your costs could be. Then, think about the different ways you'll be able to meet that cost, either through an insurance policy, annuity, reverse mortgage, savings, pension benefits, social security benefits, or other personal income.

If there's a shortfall, long-term care insurance benefits could kick in.

Have you tried to be a 24/7 caregiver? It's pretty hard work, even for a devoted family member who loves you. No one person can be there for you every hour of every day and provide all of the care you'll need.

As part of your long-term care strategy, look into caregiving services in your area, including in-home providers, elder daycare centers, elder shuttles, meals on wheels, and other low-cost services offered in your area.

Managing a rotation of 24/7 caregivers is itself nearly a full-time job. You'll want your unpaid family members to spend their energy helping you manage your way through your need for assistance rather than resenting your lack of planning.

Really? What does your home look like?

Stairs, narrow doors, steps in odd places, low bathtubs, showers without handholds are the kinds of architectural obstacles that won't work if you have limited mobility or failing eyesight. And living alone won't help if you slip and fall and no one checks on you regularly.

At some point in time, living in a community or facility may make sense, and as part of your long-term plan, you'll want to consider it sooner rather than later.

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