Carrier Buying Out a Health Contract

[leevena]

A friend of mine has a limited pay hospital plan (pays a $ benefit for each day as an inpatient). Long story short, he was offered a lump sum of $35,000 to turn in the contract. I have limited experiences with these types of plans, but was quite suprised. Does anyone have any comments about this? I find it unusual to say the least. Is it legal? Is it common? Thanks for any feedback.

[Guest b2kates]

you do not say who the carrier/issuer of the policy is. They may be trying to withdraw from the market or lessen their projected liability.

some of the other issues to consider:

What happens if your friend does not accept the buyout offer?

Is your friend insurable to get a replacement policy?

[leevena]

Hi.

I did not want to name the carrier, it is a limited pay plan and most people will recognize the name.

They are not withdrawing from the market. Rather, they believe that the insured will incur significant amount of claims over his life. They offered him $ to walk away now. If he does not receive it, the policy remains. My guess is that they will continue to drag their feet when it comes to claim payment time. He is uninsurable.

[Don Levit]

Leevena:

Is this option listed in the contract?

Have you contacted your state department of insurance?

Don Levit

[leevena]

Leevena:

Is this option listed in the contract?

Have you contacted your state department of insurance?

Don Levit

Don't know if it is listed in the contract...thanks for the lead, I'll follow-up.

No we have not contacted dept of insurance yet. Still trying to get a better perspective on this issue by asking for feedback.

Thanks.

Lee Vena

[Larry M]

Whether the $35,000 offer is reasonable will depend upon a number of things. Among them:

a. your friend's age;

b. his/her physical condition;

c. the amount and length of the daily benefit (e.g. $10 per day for 30 days is not worth much; 2,000 per day has lots of value);

d. whether the policy is guaranteed renewable or non-cancellable (Is premium rate guaranteed level for life?);

e. how soon, how often and for how long does your friend expect to be hospitalized considering the current physical state and probable degeneration.

f. the current premium

g. the ability to continue paying premiums;

h. whether policy has a waiver of premium under certain conditions

etc., etc., etc.

[Don Levit]

Larry offers some very valuable advice.

All those items should be evaluated. It seems to me, that because the insurer made this offer, one would think it is in the client's best interest not to accept the cash payout.

Assuming the lump sum option is not specified in the contract, why couldn't a lump sum be offered by a different insurer? Could a broker obtain offers from other insurers, maybe even a modified viatical offer?

Don Levit

[leevena]

HI.

Larry and Don. Thanks, we have thought of this also. The payout seems to be a little low, but we are not that concerned about it yet. It's just that I am suprised that a carrier would be allowed to do this.

thanks.

[Larry M]

"Larry offers some very valuable advice..."

Aw shucks..but, then, you forgot to add "as usual". ...[VBG]

[jmor99]

I'm shocked too. I don't see how a carrier can do this, unless it's written into the contract. Even if it's in the contract, I can't understand why any state would approve such a contract. It seems to me that the carrier is being allowed to get off the hook, which goes against all the fundamental principles of insurance.

If a provision for a "buyout" really is in the contract, then there sure as h--- ought to be a stated provision for a refereed transaction, something that protects the consumers best interest.

Otherwise, it's time to get the state insurance commissioner involved.