Thursday, November 05, 2009

Long Term Care Insurance: When's the best time to buy?

As previously noted, we don't recommend specific policies here at IB; everyone has their own needs, goals and budgets. But we do often suggest that many (perhaps most) folks might benefit from specific kinds of policies. One of these is Long Term Care insurance (LTCi), about which we've written before. But a colleague recently posted an informative and highy-readable piece on when to buy LTCi, and we're reprinting it here (with his permission).

Herman Bruns is a veteran agent in the Metro Atlanta area (does this make him a MetroGeorgian?) who specializes in the often complex field of LTCi. In response to a recent question posed at a public bulletin board which Bob and I frequent, he explains some of the factors that should be considered in deciding when to purchase this coverage:

As with most types of insurance, the ideal time to purchase LTC insurance (LTCi) is about one month before you need it. That way, you can potentially collect from the LTC carrier for a lifetime and have only paid one month’s premium. Of course, without a crystal ball, very few of us can predict when we will have a car accident or a stroke, or be diagnosed with cancer or Alzheimer’s. Many of us may be one doctor’s visit away from a diagnosis that will either cause us to pay more for LTC premiums, or possibly not even qualify for the insurance.

Christopher Reeves (Superman) never planned to fall off his horse.

As more and more baby boomers become aware of the devastating financial and emotional effects that a long term care need can have on their family, the average age at which people purchase LTC insurance has been steadily dropping every year. Government awareness programs advising people to look into this type of insurance is also causing people to get educated on how these plans work and to start early. LTC insurance is surprising affordable when you buy it at a younger age, so more and more people are simply taking advantage of it sooner. My own personal experiences with my elderly parents and in-laws in nursing homes and assisted living (all paid out of their own pocket) caused my wife and I to purchase our plan when I was 52 and she was 50. I happily pay the premium every year, even though in the back of my mind, I hope I never have to use the insurance at all. Statistically, my wife has a much better chance of using the plan than I do.

The cost of purchasing LTC insurance goes up every year you delay. Carriers raise their rates for new purchases periodically, too. The older you get, the faster it rises. As one starts to move into their early to mid 60’s, you begin to enter into what the mathematicians call the “exponential curve” of rapid price increases. The good news is that when you buy a LTC plan from a quality carrier, you are essentially “locking in” your rate for the rest of your life. Now it is true that the rates on existing policies can and do in fact increase, but many of the top carriers in the industry have a long history of little or no rate hikes. No matter when you purchase a plan, it is always going to offer you tremendous protection for a fraction of the cost of an extended nursing home stay.

Sadly, as we grow older, many of us also get less healthy. Blood pressure, arthritis, diabetes, and other ailments show up frequently as we get into our late 50’s. Many of us simply don’t take good care of ourselves, and others of us are a product of our heredity. LTC carriers give preferred health discounts to those who qualify of between 10% and 20%, so it pays to be healthy. There are a lot more healthy 55 year olds than 65 year olds out there.

Back to the original question: when should you buy LTC insurance? Although you can buy it at any age up to 84 with some carriers as long as you can medically qualify, I would urge everyone to start considering it by age 50, and try to get it in your early to mid 50’s if at all possible. If you can handle the premiums at that time, it can be a great value……and with the power of a 5% compound benefit increase, the benefit you purchase at age 50 will immediately start growing. This will provide you with a huge plan of protection by the time you statistically will most likely need the coverage, which is in your 80’s. In the long run, even though you start paying the premium sooner, the overall amount of premium paid out can be less by starting early.

Everyone’s financial situation is different, and no one plan fits all. Not everyone can start at age 52. You may have to wait until the kids get through college to afford LTCi. You may first need to move to a more cost effective high deductible or HSA eligible health insurance plan, or wait until you are on Medicare, so you can free up the funds to pay for LTC insurance. If you are already 65 and reading this blog, then the time to buy LTCi is before you turn 66….assuming LTCi makes sense for your situation. The key is to first learn more about how LTC insurance works by speaking with an experienced LTC agent representing a variety of carriers and who can advise you as to all your options.

Thanks, Herman, for your insights and for permission to share them. Readers with additional questions or thoughts are encouraged to share them in the comments.
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