Too often, those who seek long-term care only think about the cost of such services once they need them. That usually results in serious sticker shock. According to Genworth Financial, Inc. (GNW), which sells long-term care insurance, the average cost of a semi-private room at a nursing home in the United States is more than $77,000 a year.
For many older adults, long-term care insurance is an option worth considering. It may not make sense for those at the extremes of income, who are either wealthy enough to fund their own care or who qualify for Medicaid. But for those in the middle, weighing the pros and cons of these policies is a useful exercise.
If you concluded that long-term care insurance makes sense for you, timing is critical. Those who sign on too late could find themselves weighed down by higher premiums, or worse, find themselves ineligible to receive a policy. Signing on too early, on the other hand, could leave you paying many years of premiums before you are likely to need care.
- If you think you're going to need long-term care insurance, it's better to buy it in advance, versus waiting until you actually need it.
- Buy it too late and you may face stiff premiums, or be denied coverage altogether; buy it too soon and you may be paying needlessly for years.
- For most people, buying in their mid-50s makes the most sense, even though most claims aren't filed until a person is in their 70s or 80s.
The Best Age to Buy
The American Association for Long-Term Care Insurance (AALTCI) recommends that individuals take out a policy in their mid-50s. That may seem early, considering the vast majority of claims occur when people are in their 70s or 80s. The organization argues, however, that those who hold out may not qualify if their health diminishes.
While the Affordable Care Act prohibits traditional health insurers from excluding consumers based on pre-existing medical conditions, the bill doesn’t include long-term care policies. By the time people need help with activities such as bathing or dressing or have conditions such as Alzheimer’s disease and Parkinson’s disease, they could be stuck with higher premiums or have their application rejected. According to the AALTCI, roughly 23% of applicants in their 60s are declined coverage, whereas only 14% of those in their 50s are turned down.
Long-term care insurance is a necessity of the middle class, not the wealthy, who can afford private care, nor those who qualify for Medicaid.
Rates Only Get Higher
Another reason to be proactive about long-term care insurance is that premiums correspond to age. Every time people in their 50s reach a new birthday, the annual premiums they would be charged typically go up 2%-4%. Once they reach their 60s, premiums jump 6-8% for each year of age.
To get the same amount of coverage, someone who waits until age 65 to buy a policy could be charged premiums that are more than twice as high as those paid by an individual who bought their plan at 55. If the consumer is like most Americans, he/she won’t file a claim until at least age 80. Even with 10 extra years of premiums, buying insurance at 55 could save significant money in the long run.
The longer you wait to get long-term care insurance, the more expensive it is, with premiums corresponding to age.
Consider Inflation Protection
If you do buy in your mid-50s, the odds are you’ll be paying in for more than two decades before filing a claim. But because of inflation, the amount of coverage you buy won’t be worth nearly as much as it is today.
Consider an individual who buys a $150,000 policy and doesn’t need it for 20 years. If long-term care costs rise 3% a year on average, the insurance provides the equivalent of just $83,051 in protection.
Fortunately, many policies today come with inflation protection. The amount of benefits grows at either a fixed amount each year or compounds by a certain percentage annually. Naturally, you’ll pay significantly more in premiums to get this added benefit. But if you’re concerned about a minimal level of protection when you reach an advanced age, that could be a sacrifice worth making.
The Bottom Line
If you decide that long-term care insurance is the best way to prepare for your long-term care needs, there are advantages to buying it before you hit your 60s. You’ll not only increase your chance of getting approved but also benefit from a lower rate, in most cases. Keep in mind that pre-existing conditions may also affect your ability to gain coverage, as well as its cost.