Coverage considerations and the optimal age to buy it.
A listener named Bryan requested a show about long-term care insurance. He’s not sure if he’s old enough to need it yet, but he’s been receiving policy offers in the mail. He writes:
I frequently get scary letters offering long-term care insurance. I understand the benefits, but I don’t understand when is the ideal age to buy a policy. I’m 53 and plan to work to at least age 65. Is it better to wait until you’re closer to 65 or is there any benefit from purchasing a policy while you are still working and are insured?
Bryan, thanks for your question! There’s no doubt that long-term care insurance can be a confusing product. There’s a lot to consider when deciding if it’s right for you or for someone in your family. And if you do want it, how do you know when you should buy it? In this show, I’ll share five pointers.
What is Long-Term Care Insurance?
First off, let’s discuss why you’d want a long-term care policy to begin with. Long-term care is a special type of insurance that covers many of the services you may need when you have a prolonged illness or disability that keeps you from caring for yourself. Don’t confuse it with disability insurance, which replaces lost wages or business income if you have a serious illness or accident that leaves you unable to perform work in your occupation.
Long-term care insurance is typically recommended for those nearing retirement age, but the potential for needing long-term care really exists at any age. There are two types of care you can get with long-term care insurance: personal care and skilled care. Personal care may include having someone help you dress or prepare meals in your home. Skilled care would come from a registered nurse or a professional therapist, for example, in or out of your home.
Why Consider a Long-Term Care Policy?
Many people mistakenly believe that they’re entitled to get these types of long-term care services from their health insurance, Medicare, or Medicaid. Unfortunately, the majority of health insurance policies don’t cover any long-term health care expenses. Medicare is a U.S. health program that’s available once you reach age 65 (or younger if you have certain disabilities). Medicare eligibility requirements are strict, and it provides skilled medical and home health care for a limited period of time only. Find out more at medicare.gov. Medicaid is a state-administered program that may foot the bill for nursing home expenses when you have very little income and minimal financial assets. A good resource to learn more about these public programs is at the Centers for Medicare and Medicaid website at cms.hhs.gov.
Unless there are some serious national health care reforms coming our way, pointer number one is that you should not count on the government to pay the costs associated with long-term care in either your home or in an assisted living facility.
Since you are responsible for paying for your own long-term care, pointer number two is to be realistic about how much it can cost. I’ve read that the average cost for personal care in your home can be as much as $100 per day or $36,500 per year. If you end up needing a nursing home, expect to pay as much as $50,000 a year or more depending on its location and quality of services. If you’re wealthy, you may have enough savings, investments, or assets to be self-insured and not need the benefits of long-term care insurance. But if you don’t have enough, consider the financial risk that your care could pose to a spouse or other family member who’s responsible for you. The bottom line is that years of in-home health care or nursing home care could crack open and fry even a very large retirement nest egg. These realities are probably well-promoted in the frightening letters that Bryan’s received from insurance companies.
The predicament that many people discover is that long-term care insurance is expensive—that’s pointer number three. And the older you are when you buy it, the more costly it’ll be. For example, premiums can cost twice as much at age 70 than they would have at age 60. And besides having a higher price tag, waiting to apply could result in being turned down for coverage if you’re not in good health. However, buying insurance when you’re younger may not be the best choice either, because you could end up paying less-expensive premiums for a longer period of time before getting benefits, if ever. To get an idea of these costs, visit websites that offer free insurance quotes such as freeltcquotes.com.
So pointer number four is that when it comes to buying long-term care insurance, timing is everything. There’s a sweet spot in your life that’s the best age to get high quality coverage at an affordable price. But it’s different for everyone, because the best time to buy a long-term care policy depends on the state of both your health and your finances. So to answer Bryan’s question about if it’s better to wait until you’re closer to age 65, the best answer I can give is that it depends. Many experts recommend purchasing coverage in your 50s, when it’s likely that you’re still healthy enough to qualify and also earning enough to afford it. If you feel confident that your good health will continue into your 60s, you could save a lot of money by delaying the purchase for a decade. However, consider buying a long-term care policy at a younger age if you have a family history of medical concerns that require prolonged care. You may also want to purchase it sooner rather than later if your health begins to deteriorate or if you enjoy extreme downhill skiing that begins with a helicopter ride! [[AdMiddle]
If you decide that long-term care insurance is for you, pointer number five is to be sure you fully understand all the features and limitations of the policy you purchase. For example, know if your policy premium can go up, and if so, consider buying inflation protection as a way to guard against increases. You can reduce the cost of premiums by lowering the daily care reimbursement rate or by increasing the waiting period until long-term care benefits begin. For example, increasing your waiting period from 0 to 90 days could save you 10% or more each year. You can also receive a large discount if you opt to pay one annual premium instead of making monthly payments.None of us like to think about losing our health or our independence. However, the harsh reality is that getting long-term care in our home or in a nursing facility is likely to be expensive. So it’s wise to make a plan for how you’ll fund long-term care on your own dime or pay for the cost of insurance premiums.
To find out about a government program that may help you supplement your long-term care insurance plan, check out my Quick Tip on the Community Living Assistance Services and Supports (CLASS) Act.
If you want to know how to choose investments using technical analysis, don’t miss one of the newest QDT Network shows, The Winning Investor. Find it in iTunes or at quickanddirtytips.com.
I’m glad you’re listening. Chi-Ching, that's all for now, courtesy of Money Girl, your guide to a richer life.
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