According to the Department of Health and Human Services, 70% of Americans will need some sort of long-term care (LTC) services at age 65 or older. With the cost of care skyrocketing, knowing when to buy protection to cover these future expenses is important.
Being prepared ahead of time and purchasing long-term care insurance while you are younger will not only keep the cost of coverage down, it will prevent you from being hit with huge bills down the road that could drain your savings.
Everybody’s needs are different and when to purchase long-term care really depends on your financial situation and family medical history serving as a guide for when you might need long-term care service. This comprehensive guide will explain everything you need to know about long-term care insurance, and when you should consider buying it.
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According to the American Association for Long-Term Care Insurance, the sweet spot for purchasing LTC insurance is between 55 and 65. After that, it could become more difficult to find adequate coverage, especially for those with pre-existing medical conditions.
Like most insurance policies, the younger and healthier you are when you buy long-term care insurance, the more likely you are to receive coverage and the more affordable it will be. The AALTCI illustrates that insurers decline 23% of applicants in their 60s while only 14% of those in their 50s face rejection.
What happens if you wait until you're in your 70s or 80s? It might not be the end of the world, but you could become ineligible due to health concerns, leaving you to use your own savings to cover care costs, rely on family to provide care, or financial assistance.
Like most insurances out there, age does have an impact on the price. That is why it can be beneficial to buy LTC coverage sooner rather than later. While the younger you are can lead to reduced costs on insurance premiums down the road, paying for a policy for a longer period, may cost you more overall. There are alternatives to traditional long-term care so that the premiums you pay don’t go to waste.
Purchasing long-term care insurance early in life can save you money up front with lower monthly premiums, but what if you never end up using it? Timing can be everything. Buying long-term care insurance between 50 to 65 still is your best bet for premiums are cheaper while also ensuring you are not paying the coverage longer than you have too.
The cost of long-term care can be very expensive if you wait too long. Not only that, the older you are, the more likely it is that you could have a pre-existing condition which could prevent you from getting coverage at all, leaving you to have to find another way to fund your care. When it comes to buying long-term care, age and timing go hand-in-hand if you want to get the most out of your money.
Buying long-term care insurance is a major financial decision, so it's important to do your research beforehand. Take the time to understand what policies are available and weigh all the options to select the most appropriate coverage for your needs.
Having protection in place can save you money in the long run, but make sure that you look at factors such as age and medical history, lifestyle, and family dynamics to ensure you're taking out the right type of coverage for your situation.
Here are three other factors to consider when comparing your long-term care insurance policy options.
Your health care directly impacts not only the cost of long-term care coverage but also your eligibility. Many times, insurers will require you to take a medical exam or request to review your health records. The healthier you are, the more likely you are to get coverage at an affordable rate.
However, if you have pre-existing conditions, you may not qualify for care, and if you do, the cost will most certainly be very high.
For example, people in average health typically pay what’s known as the standard rate for their policy. Those that are in great shape have a better chance at qualifying for preferred health rates, which can be 10 to 15% less expensive than a standard rating.
Finally, the type of policy you get could affect long-term care insurance costs. LTC insurance comes in three main types — traditional, hybrid, and life insurance with a long-term care rider.
Traditional LTC policies provide only coverage for LTC costs, while hybrid plans offer LTC coverage and life insurance. Hybrid LTC plans are more expensive than traditional long-term care policies because it also includes a payout to beneficiaries when you die.
Life insurance with a long-term care rider lets you access some of the death benefits while you are still alive for your long-term care needs.
The best policy really depends on your individual circumstances and coverage goals.
When buying coverage, it's important to consider inflation and how your long-term care insurance policy can help combat it. One way to safeguard yourself against inflation when it comes to long-term care is by investing in an inflation rider. There are two main types: simple or compound choice.
A simple inflation rider is a fixed percentage increase of your original daily long-term care benefit only. Although more affordable than a compound inflation rider, it may not grow your benefit fast enough to keep up with rising costs in the future.
A compound inflation rider increases your coverage more quickly than the simple rider because its interest on interest, creating a snowball like effect which increases the speed at which your benefits increase. Premiums will be more costly with this rider, but it could end up saving you more money in the long run.
There's no “one size fits all” approach when selecting the plan that best meets your needs and financial circumstances. The cost of long-term care insurance policies varies greatly depending on your age, level of coverage, and other factors making it difficult to decide exactly what policy would be best for you.
To help guide you through this process, experts generally suggest four broad viewpoints as starting points when considering long-term care insurance. Let's explore those four main options.
Let's assume you're younger than 50. While this puts you in a good position to access cheaper premiums because of your age, it could be a different story with a not-so-great health history.
In this case, we strongly suggest you start looking for long-term care policies sooner rather than later. In addition to a long-term care policy, you might also want to research state partnership plans and hybrid long-term care policies. If you have a few serious, pre-existing conditions, you might consider adding more coverage to your policy. However, the more benefits you want from your long-term care insurance policy, the higher the price will be.
If you end up exhausting your long-term care insurance benefits and still need long-term care, you'll likely have to use your savings and investments to cover the expense. If you run out of your own funds, you may be eligible for Medicaid assistance if you need additional assistance.
Long-term care insurance policies are likely unnecessary if you're younger than 50 and have a good family health history. At least, they're not likely necessary at the moment.
You may be better off buying a life insurance policy with a long-term care rider provision or self-insuring instead. Self-insuring involves saving as much money (including the amount you would normally pay on long-term care premiums) in case you need long-term care services later. Opt for traditional medical care for routine issues and monitor your health.
Is it a risk to wait to buy insurance for long-term care? If you are healthy and younger than 50, there aren't too many risks. The risk of overpaying for care you don't need is high. Policies have become increasingly expensive over time. Most people also don't usually use them until they reach their 70s or sometimes even into their 90s.
What about those older than 50? Regardless of your health condition, buying a long-term care insurance policy could be a good idea.
At the very least, it's worth looking into financial planning resources for seniors. Research costs to ensure you understand the risk of paying those costs out of pocket if you eventually need long-term care.
Finally, what happens if you already have long-term care insurance but find it too expensive? In that case, getting in touch with the agent or financial advisor who issued the policy is important.
Many insurers now allow policyholders to adjust their contracts to make them more affordable. This could involve things like:
Likewise, it's smart to compare your policy to other long-term care insurance policies available on the market, including hybrid policies.
Again, the answer depends on your situation. It might be worth it if you're young and can guarantee higher rates of return. However, with inflation the way it is, care costs are likely to increase more than what you'll earn from investing.
Investing offers the potential for earning higher returns on investment, which can prove beneficial in providing financial protection over the long term. However, investing also carries additional risks with no guaranteed coverage. The key? Balancing ambition and risk management when investing your money.
The ability to customize investments allows for versatile solutions like investing some money and using the rest for insurance. However, those types of customized options come with additional complexity.
Ultimately, investing in place of long-term care insurance might provide greater returns — but only if you research and understand the risks associated with investing in financial products.
Even though it’s important to consider your finances and review all your options before pursuing long-term care insurance, we do believe this type of protection is absolutely worth it. It can help ensure you receive quality care for unforeseen health issues without depleting your savings.
When you buy long-term care insurance, you protect yourself from emotional and financial stress if a disabling health event occurs. This can make a huge difference in the overall quality of life you'll be able to enjoy in your golden years and allow you to maintain independence by providing access to the support systems you need.
Our content is created for educational purposes only. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Everdays encourages individuals to seek advice from their own investment or tax advisor or legal counsel.