At What Age Should You Consider Long-Term Care Insurance?
January 21st, 2010
When is the right time to begin planning for how you will fund the escalating costs of health care in retirement? If you are like many people I work with, you will wait until the last minute.
Many wait until they want to retire. One day they think to themselves, “I am tired. I wonder what it would take for me to walk away?” And then they begin to consider health care costs as part of the walk away equation.
Others will wait until they turn 65 and Medicare decisions force them to consider the issue. Still others will really never do proper planning for the cost of health care, beyond basic health insurance. Many of those people, sadly, face a high probability of depleting their assets late in life and putting their loved ones in very difficult situations.
Health care costs are made up of four main expense categories:
- Outpatient services – routine doctor visits, laboratory testing, physical therapy, etc.
- Hospital services – inpatient care in a hospital setting
- Long-term care – services provided in the home, community, assisted living or skilled nursing facility
The first three items are issues throughout our working lives and the necessary insurance is often obtained through our employer. With fewer and fewer workers receiving lifetime retiree health care benefits, Medicare and Medicare supplement policies will be the primary means of funding medical care in retirement.
Long-term care, however, is different. Many people mistakenly believe that Medicare will pay for long-term care. Medicare will only pay for a short time and only under very specific, limited circumstances. The only government agencies that pay for Long Term Care are Medicaid (read medical welfare) and the Veteran’s Administration. Both are notorious for their lack of care quality and poor quality of life for their residents.
In order to protect your assets and preserve quality of life for you and your loved ones, a long-term care insurance policy is often the best solution. But when should you purchase a long-term care policy?
For years, experts recommended your mid-fifties as the time to purchase long-term care insurance. In fact, I said the same in my book, How to Be the Family CFO. Some even suggested you wait as late as 65! (That wasn’t me.)
In recent years, as our understanding of the probabilities and costs has become clearer, that has begun to change. More recently, experts have begun to suggest your forties as the ideal time to purchase long-term care insurance.
In fact, the Federal and State Partnership Programs encourage people to buy as early as age 40. This is probably driven by the desire to increase the financial security of the programs. But, undoubtedly, it is also to ensure that people do not become a burden on the Medicaid system if they get sick or injured at an early age and need long term care. The government wants you to have long-term care insurance, hence the partnership programs.
When deciding when to purchase long-term care insurance, there are two factors to consider: 1) the need for long-term care insurance; and 2) the cost.
First let’s look at need. According to the U.S. Department of Health and Human Services, roughly 70% of Americans over the age of 65 will need some form of long-term care. Over 40% will need care in a nursing home for some period.1 Furthermore, women are more at risk then men because they live longer. 79% of women over the age of 65 will need long-term care.2
This is quite different from the need for homeowner’s insurance or automobile insurance. There is a low probability you will ever file a major claim against either of these types of insurance. The need for long-term care is much more prevalent. Yet, the use of insurance to manage the risk is relatively underutilized.
So chances are you will need long-term care, whether you want to admit it to yourself or not. So then it comes down to cost.
The cost of a long-term care policy is a balancing act. The cost of a given policy is largely dependent on two factors: your age and health. The younger you are, the more inexpensive the policy. Also, the younger you are, the less likely you are to have developed a health condition that makes you a substandard risk or even uninsurable.
On the other hand, if you buy early, you may be paying premiums for 40 years before you actually receive any benefits. Moreover, increases in those premiums are possible during the lifetime of the policy, not due to your age or health, but due to the insurer’s need to adjust their rates due to a higher than expected number of claims.
For us, the question comes down to what you can afford. If you are young and healthy and can afford to purchase a $1000 – $1500 a year policy (maybe less if you are super healthy) without materially affecting your standard of living, you probably should. The reasoning goes like this …
First, as I said earlier, you never know when you are going to be diagnosed with an illness or condition that greatly increases your chances of needing long-term care while at the same time making insurance prohibitively expensive or even impossible to get. And even though you may pay those premiums a long time before you receive any benefit, you are effectively creating a hedge against future health problems.
Second, even though you may experience price increases over the life of the policy, if you are with a strong insurance company and have a good policy, it is, in our estimation, a good bet that the existing policy won’t increase by as much as the additional cost that comes with age and potential health problems.
Third, the value of long-term care insurance is that it gives you and the people you love flexibility when deciding how to meet your care needs. Long-term care insurance provides independence, as we age, by providing the ability to pay for care in our homes and Assisted Living costs. It also protects loved ones from the burdens of caregiving.
One web site called long-term care insurance “nursing home and family caregiving prevention insurance”, and asserts that alone is worth its price.
So the short answer is, if you can afford the premium for years to come, it’s better to buy now to protect yourself and your family.
When to purchase long-term care insurance is just one of many questions you must answer when planning for health care costs in retirement. As a result, I have created a half-day course, as part of the KiM-B-A Program, called Funding Health Care: The Retirement X Factor. As usual, I will break it down in easy-to-understand language and step-by-step instructions for what to do and in what order/
The cost of the course is $247, a mere pittance compared to the possible benefits – not to mention the money it will save you by avoiding costly mistakes. Consider this as just one example of the value this course provides: One insurer calculates inflation protection on their long-term care policies differently from all the other companies. Knowing this could get you up to 7.5 months of additional coverage compared to comparable policies with other companies, if you qualify.
The course is a half-day and the next scheduled date is February 5, 2010, a Friday afternoon so it is easy to take off from work if you need to. At the end of the course, you will know how to:
- Make sense of Medicare, Medigap, Medicare Advantage and long-term care policies
- Determine what coverage you need and what you don’t
- Avoid some of the horror stories you have heard about when buying retiree health care insurance
- Plus, you will have a list of additional resources should you need additional information, an insurance review or to purchase a policy.
Register today for Funding Healthcare: The Retirement X Factor.
The next class is February 5, 2010. At the moment, it is only offered as a live course in Dallas. However, I would consider doing a live, online version if there is enough interest.
If you absolutely, positively cannot take the live version for logistical reasons, but are seriously interested in an online version of the course (meaning you would commit to signing up if I offered it on a date you could make), then please let me know that by going to the course overview page and clicking the orange “I Am Interested, But …” button. You will find it in the middle of the page, just under the registration button.
1. U.S. Department of Health and Human Services, National Clearinghouse for Long-Term Care Information website, http://www.longtermcare.gov.
2. Peter Kemper et al, Long-Term Care over the Uncertain Future: What Can Current Retirees Expect? Inquiry, Volume 42, Number 4, Winter 2005/2006, pp. 335-350
This is not financial, legal or tax advice. Our goal is your financial success, but all investments involve risk including the possible loss of principal and results will vary. If you are interested in the Snider Investment Method, please read the Owner's Manual for a complete discussion of risks and benefits. More information can be found on our website or by calling 1-888-6SNIDER. Past performance is not indicative of future results.