When should you buy long term care insurance?

Long-term care insurance
Kevin Wenke

Kevin Wenke

CFP | CLU | Investing | Insurances | Taxes

All You Need To Know About Long-Term Care Insurance

There is no question that healthcare costs are skyrocketing (along with the cost of everything else…), but the cost of long-term care is accelerating even faster. Imagine if you were forced to spend more in a month to be taken care of (or have someone you care about.) So you may be asking “When should you buy long-term care insurance?”

It may sound like a bad dream, but paying for long-term care is already a reality for some people. I have a friend whose mother is only 75 but has developed dementia. She needed care 24 hours a day, and the family was spending $12,000 per month to make sure she is getting the best care!

According to Genworth Financial, the average monthly cost of long-term care services in 2021 is as follows:

Nursing home care ($85,800 to $150,000 per year), Assisted Living ($51,600 per year) and 8 hours a day for in-home care costs ($52,620 per year)

That’s the cost of care today. Imagine what it will be if you need some form of long-term care services 10, 20, or even 30 years from now. Few people can handle that cost on their own so without help, all their hopes to leave a positive legacy could be shattered. 

Traditional health insurance (including Medicare) won’t help. The only insurance that can help with potential chronic health issues that prevent you from doing activities of daily living is long-term care insurance.

What is long-term care insurance?

Long-term care insurance helps cover the cost of a nursing home, assisted living facility, or home health aide if you cannot perform one of the (7) activities of daily living and cannot care for yourself. 

Without long-term care insurance coverage, the cost obtaining care can quickly erode your retirement savings and any other assets you own. 

How does long-term care insurance work?

Buying long-term care insurance is similar to buying life insurance and disability insurance, both in price and process. There is an application to fill out and health questions to answer. The insurer may ask to see medical records.

You choose the amount of coverage you want. Policies usually cap the amount paid out daily and the total benefits paid during the policy’s lifetime.

Once you are issued a policy, LTC insurance is guaranteed for as long as you pay the premiums, regardless of age or health condition.

Typically, you qualify for LTC benefits if you cannot perform 2 or more of the activities of daily living (ADL), which include bathing, dressing, eating, walking, getting out of bed, and using the bathroom.

Long-term care insurance policies will pay benefits in one of two ways:

  • Expense-incurred policies reimburse policyholders for long-term care expenses they incur, up to the maximum benefit amount. The person receiving care will submit claims based on what they have spent.
  • Indemnity policies pay a set dollar amount regardless of the cost of the service you receive. You will begin receiving insurance payments once you receive long-term care after the waiting period.

How much does long-term care insurance cost?

The cost of long-term care insurance depends on the level of benefit you purchase as well as your health and age at the time you take out the policy. The more benefits, the more the cost. To give you an idea of the “average though, the American Association for Long-Term Care Insurance (AALTCI), says that the costs are: 

  • $2,050 for a 55-year-old male
  • $2,700 for a 55-year-old female
  • $3,050 for a couple that is both aged 55

These rates were for a policy with an initial pool of benefits of $164,000, which compounded annually at 3 percent to total $386,500 at age 85.

In addition to your age, health, and gender, premium rates will be based on how long the policy will pay benefits. The longer the benefit period, the more you will pay in premium. Most people who need long-term care require it for about two years, though about 14 percent need it for five years.

Another factor is the policy’s elimination period, also known as a waiting period. This is the time between when you require benefits and when the first payment is made. The shorter the waiting period, the more your policies will cost.

Long-term care insurance policies also offer optional features, known as riders, that can enhance your coverage. One example is a cost-of-living adjustment rider, which increases the available benefit to take inflation into account.

Remember that what you pay today may not be your premium amount years from now.

Unlike other types of insurance where your premium stays the same for the policy’s life, LTC policy premiums can be raised after you have purchased the policy by as much as 300%! 

The good news is the insurance company cannot single out just one person out for any premium increases, and they can not cancer a policy for anything other than failure to pay premiums. Instead, they can only raise the rates of all policies within a specific rate class with approval from state regulators.

Who needs to own long-term care insurance?

According to AALTCI, about 76 percent of LTC insurance buyers are between the ages of 50 and 69.

Still, one of the challenges about long-term care is knowing exactly when to buy long-term care insurance. Younger people require care as well if they have illnesses or accidents preventing them from performing the activities of daily living.

The dilemma consumers face when considering long-term care insurance is:

  • Commit too early and you could needlessly spend thousands of dollars on the early years of a policy.
  • Wait too long and you could develop a health concern that makes you “uninsurable” and unable to obtain coverage

I am going to tell you that many “experts” state LTC insurance typically isn’t a priority at a young age. They point out statistics that only 4.5 percent of long-term care claims started in 2018 were for people under the age of 70. Over two-thirds of claims began for insureds who were at least 81 years old.

These statistics may be misleading though because most young people who could have claims don’t have any coverage to file a claim against.

The fact of the matter is that young people DO require long-term care services at times. Those who have accidents or illnesses do lose their ability to perform those activities of daily living.

I know that I personally struggled for several months in 2016 when I had esophageal cancer. I also know people who’ve had motorcycle accidents, disabling diseases like Multiple Sclerosis,  amyotrophic lateral sclerosis, and other health problems who have needed long-term care in their 20s, 30s, and 40s. Long-term care health issues aren’t reserved just for JUST the elderly.

If you understand all this but still wondering how you can pay premiums for long-term care insurance coverage while still being able to save for retirement, pay your day to day bills and have some money left to have some fun, I understand.

Ideally, you want to figure out how to have money available for long-term care by coordinating it with other parts of your financial plan. This is something we do in our Wealth Manifestation Process.

If you try to figure out a solution for long-term care isolated from all your other financial concerns, you will have a hard time coming up with all the money needed to take care of all your desires.

The Wealth Manifestation Process helps identify ways to leverage your financial positions to gain the maximum benefits for you.

For example, by utilizing The SALLO strategy, you can simultaneously invest for retirement AND have money for long-term care if you need it when you are younger. 

SALLO and The Wealth Manifestation Process also protect you in the future if you are unable to buy coverage in the future.

This is because, like all insurance, the older you are, the more expensive the policy will cost. In addition, the chances of being denied coverage increase the older you get. Insurance companies and their underwriting process filter out those they believe have a high probability of having claims. Any health issues you could develop as you get older will be looked at in detail and cause you to be declined. Therefore, the best time to have a plan (even if it isn’t perfect) is right now!

According to AALTCI, only 16 percent of applicants under 50 were denied a policy in 2019. That percentage increased to:

  • 21 percent of applicants in their 50s
  • 24 percent for those between 60 and 64
  • 32.5 percent for people 65 to 69
  • 44 percent of applicants age 70 to 74
  • 51.5 percent for those 75 and over.

So you can see, the older you are, the less likely you will be underwritten for LTC coverage.

Final thoughts on when to buy long-term care coverage

I’m a financial planner so of course I am going to say having some form of LTC coverage, even if you are in your 20s, is a good idea. The big roadblock for people of all ages is how to have coverage while balancing the needs of today with the potential needs of tomorrow.

For many who try to figure out how to do this on their own, isolated from other important decisions, they figure out buying long-term care insurance in their 50s is often the most advantageous because it’s their peak earning years (and kids start moving out of the house…)

People who have a family history of health issues are often more eager to buy some form of LTC coverage, while those who don’t tend to wait longer using the logic that “they won’t need it” and don’t want to pay for coverage for 30 years or more on something they don’t know if they will use.  

I understand why people think like this, but at the same time, most people have fought their whole life to be different than their parents…and they are.

The bottom line is that there really is no ideal age to buy long-term care insurance. Still, from a planning standpoint, the sooner the better because you never know when “IT” could happen or you develop a condition that makes you uninsurable.  

I wrote a book called “Long-term care secrets” that you can check out here. One thing I explain is that you can get LTC coverage without spending a dime out of pocket when you understand the rules of the financial game, challenge the status quo and demand Maximum value from the dollars you have working for you to create the future you desire.

 

Leave a comment

Your email address will not be published.