Plain version: the right long-term care policy depends on the buyer's money and goals, and swapping one policy for another is rarely free for the buyer. California makes the insurer check suitability and takes the profit out of needless replacement.
Suitability standards (§10234.95(b)): the insurer's procedures must take into account:
- the applicant's ability to pay for the proposed coverage and other financial information;
- the applicant's goals or needs and how the insurance meets them;
- the value, benefits and cost of the applicant's existing coverage compared with the proposed policy.
The agent's commission is not a suitability factor: suitability looks at the applicant.
LTC Insurance Personal Worksheet (§10234.95(c)(1), (d), (h)):
It is given to the applicant at or before the time of application, and the completed worksheet must be returned before the issuer considers the applicant.
If the applicant declines to provide the information, the issuer may reject the application or send a suitability letter.
Employer group coverage for employees, their spouses and dependents is exempt from this requirement.
Unnecessary replacement (§10234.85): no insurer, broker, agent or other person may cause a policyholder to replace long-term care coverage unnecessarily. A third or later policy sold to the same policyholder within 12 months is presumed unnecessary. The exception is a replacement made solely to consolidate policies with a single insurer.
Producer compensation on a replacement (§10234.97(a)-(b)): when a non-group replacement has a higher premium, the first-year commission rate is paid only on the difference between the new and original annual premiums. If the new premium is equal or lower, compensation is limited to the rate normally paid on renewals. Commission or other compensation includes bonuses, gifts, prizes, awards and finder's fees.
Example: a $2,400 policy is replaced by a $3,000 policy that materially improves the insured's position. The first-year rate applies to $600.