Think You Can Wait Until You’re 50 to Purchase Long Term Care?
Think Again.
By Jonathan Schwartz, CLTC
Long Term Care Insurance brochures from various carriers and organizations will suddenly start to appear in your mailbox right after you celebrate your 50th birthday. Financial Planners will also start to discuss the long-term care needs of their clients during these pre-retirement years. Conventional wisdom says that this is the right time to consider such coverage. The opinion here is that waiting until you are 50 years old to look at this coverage can be a costly mistake.
Long-term care is generally defined as the services provided to people who need assistance with their activities of daily living, because of either a physical or cognitive impairment. This care is often needed as the effects of aging set in. It can be provided in one’s home, an assisted living facility, or a skilled nursing home. Long Term Care Insurance provides you the dollars to pay for the cost of this care.
Why would someone in their thirties or forties look at this coverage?
The traditional market for Long Term Care Insurance is people in their fifties and sixties not their thirties and forties. However, as with most insurance, the younger you are the lower the rates. The Long Term Care Insurance industry has a plethora of “Cost of Waiting” charts that show how rates increase as you get older. In the long run it would be more cost effective to buy the coverage sooner rather than later.
Additionally, there is always the not-so-insignificant factor of insurability. After all, it is your health that allows you to buy insurance of any kind. Once you have a health condition progressive in nature and indicative of a higher probability for long-term care, you will no longer be able to obtain the coverage.
One of the most cited statistics in the Long Term Care Insurance industry is from the American Academy of Actuaries, July 1999: 40% of the individuals in the United States receiving long term care assistance are between the ages of 18-64.
While these are very credible reasons for locking in coverage while you are young and healthy, they still do not inspire many people to secure this coverage at a young age. Most people in their thirties and forties still see Long Term Care Insurance as something their parents should be addressing. “I’m too young for this” is the natural response.
Why waiting 10 years is probably a mistake, even if you are still in great health.
Even if you could guarantee good health ten years from now, taking out the coverage today is still a smart financial decision for many. Here is why; the coverage is under priced and the benefits will only become less flexible over time.
While most major carriers have not raised rates on existing policyholders, there is a definite trend toward the introduction of new policy series. A new plan from a carrier typically means higher rates than the old plan. So when you look at the “Cost of Waiting” chart that shows what the rates will be if you waited ten years, you are looking at what the rates would be if the carriers are still offering the same coverage ten years from now. There is good reason to believe that those rates will be higher in the future.
In today’s highly competitive Long Term Care Insurance market, there are well over 100 carriers. In the battle to stand out, many are offering very rich benefits: indemnity or “cash benefits” that will simply pay you your maximum daily benefit regardless of the costs you incur; joint waiver of premium benefits (premiums waived for both spouses if one is on claim) and survivorship benefits (premiums are waived for the surviving spouse if one spouse passes away.) There are even riders out there that return all of your premiums to your estate upon your death.
All kinds of discounted rates are also currently available. These discounts include preferred health discounts, spouse and domestic partner discounts (sometimes even if only one person applies) and sponsored group discounts.
With the claims experience just beginning for many carriers, there has been some rethinking of these rich plan designs and the availability of discounted rates. Some of the richest plan designs are now only available to those in the the best of health. The preferred health discounts have become much harder to get. With some of the major carriers, the preferred health rating is not even available with certain plan designs. Definitions of a sponsored group for a discounted rate have also become more restrictive.
These actions do not indicate a troubled industry, but there is a definite trend toward the carriers having made too many optimistic assumptions with the pricing of the coverage.
But the rates aren’t guaranteed!
The most effective argument against buying Long Term Care Insurance at a young age is that the coverage is guaranteed renewable. This means that even though the plans are designed to have level premiums forever, the carriers reserve the right to raise rates if they raise them for everyone who has the same policy in your state. Your state insurance department would have to approve any rate increase.
Not having a guaranteed rate is a major concern for someone with over a forty year time horizon. However, there is a way to protect against future rate increases. You can do this by buying a limited pay policy. With this, your policy will be paid up after making payments for ten years or to age sixty five depending on which option you choose. With a limited pay policy you will never have to make a payment after the billing period is over. Your policy is contractually paid up.
If there is a rate increase in year eleven of a ten year limited pay policy, you do not have to pay anything. The rates are naturally higher with a limited pay policy, but your are much less likely to ever see a rate increase and you can guarantee you will not have to make payments after your policy is paid up. You are subject to a possible rate increase during your scheduled payment period. So it is still important to be with a top rated company with a commitment to price stability.
Paying off a policy in ten years while you are working is the ideal solution for someone who has significant assets and wants to protect them from the sky rocketing costs of long-term care. No one is too young to look at securing this coverage.
Don’t Kid Yourself with these Arguments
Other notions may come to mind to help you rationalize putting off long term care coverage. Here are a few to ignore;
I want to wait, because maybe the government will be making long term care an entitlement for everyone.
The federal government rolled out their own Long Term Care Insurance program for federal employees and federal retirees in 2002. The message should be clear to the general public. We cannot afford to pay for this care and you should not rely on the government to make this entitlement.
“I will not allow myself to need long term care, I will shoot myself first”
No one thinks they will need long term care, especially at a young age. However, look at your own family or family members of friends who needed care. Most families have had someone who needed long term care and with medical advances allowing us to live longer, it is inevitable that more of us will be needing this kind of care in the future.
Yes it makes sense, but I have to pay for…
Insurance dollars may be limited in your monthly budget. For someone with a young family, they should address their life and disability insurance needs before Long Term Care Insurance.
But, if you have the ability to take out a long term care policy and pay it off in ten years, you will look back on your decision and be shocked at how forward thinking you were.
Do your homework in choosing the right carrier and agent. Make sure your carrier has a financial strength rating of A+ (Excellent) by A.M Best (or other rating agencies) and your agent specializes in Long Term Care Insurance. A long term care specialist has achieved the industry recognized CLTC designation.
Registered Representative of Park Avenue Securities LLC (PAS), 7 Hanover Square Suite 8A New York, NY 10004 . Securities products and services offered through PAS, 1-888-600-4667. Financial Representative, The Guardian Life insurance Company of America (Guardian), New York, NY. PAS is an indirect wholly owned subsidiary of Guardian. National Financial Network LLC is not an affiliate or subsidiary of PAS or Guardian.
PAS is a member NASD, SIPC.
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