Long Term Care Certification Practice Test

Once a claim is filed against a long-term care policy, what must the insurer do regarding reserves?

1. Immediately pay the claim in full

2. Set aside a reserve amount for the unpaid claim

3. Cancel the policy after the claim

4. Notify the insured about the claim process

The correct answer is: Set aside a reserve amount for the unpaid claim

When a claim is filed against a long-term care policy, it is essential for the insurer to set aside a reserve amount specifically for the unpaid claim. This reserve acts as a financial safeguard that ensures the insurer has sufficient funds to cover the anticipated costs associated with the claim. It reflects the insurer's responsibility to account for potential liabilities arising from the claim, ensuring that they can fulfill their obligations under the policy. Setting aside reserves is a critical practice in the insurance industry, allowing insurers to manage their risk effectively and maintain financial stability. By reserving the necessary funds, the insurer demonstrates financial prudence and regulatory compliance, ensuring that they are prepared to settle claims accurately and timely. This reserve must be calculated based on the expected costs of the claim and any uncertainty surrounding it. The other options do not reflect the appropriate course of action. Simply paying the claim in full without reserving funds could jeopardize the insurer's financial health. Cancelling the policy after a claim could lead to legal repercussions and customer dissatisfaction. While notifying the insured about the claim process is important, it does not replace the necessity of establishing a reserve, which is a fundamental aspect of managing claims.