When to buy long-term care insurance

You may understand the importance of long-term care insurance, but when is the best time to invest in it? Explore why timing matters.

You may have thought about purchasing long-term care insurance (LTCI) to help you prepare for a day when you need assistance with daily activities, but have you considered when is the best time to invest in a policy? Learn more about choosing the optimal time to apply for LTCI, different options you may want to consider and common mistakes to avoid.

What is long-term care insurance?

Long-term care insurance (LTCI) is a policy that will help you cover expenses associated with receiving day-to-day assistance should you become unable to perform daily tasks due to an accident, illness or decline due to age or ability. According to the U.S. Department of Health and Human Services, the majority of seniors over age 70 will require long-term care assistance at some point in the remainder of their lives.¹ That may cross your mind as a passing thought, but have you considered the actual cost of this type of care?

If you require 24/7 assistance and move to an assisted living or nursing home facility, the costs mount quickly. The median cost of an assisted living facility is about $200 per day or $73,584 per year.²; Residence at a nursing home is even more expensive, running an estimated $114,665 annually for a semiprivate room.³ The cost of in-home companion care (light housekeeping, meal preparation and companionship) ranges from $20-$30/hour and climbs to $50-$80/hour for skilled nursing care.⁴ With the cost of inflation, rising demand for care services and worker shortages, these costs are expected to rise by 70–80% over the next decade.⁵

By investing in LTCI to prepare for a day when you may require care, it's possible to ensure you can get the assistance you need without depleting your retirement savings or burdening your loved ones.

Why timing matters for long-term care insurance

There are several reasons why timing is important when it comes to purchasing long-term care insurance. First of all, as with most insurance policies, the older you become, the higher the premiums. For this reason, it's a good idea to buy a policy while you are still young and healthy. In addition, LTCI involves a medical underwriting process, meaning that if you wait to purchase a policy until you have health conditions, then your application may be denied, or your premiums may increase significantly due to your health condition.

How age impacts long-term care insurance costs

As you age, premiums increase because the life insurance company takes on greater risk as you become older, draw closer to the end of your life and/or experience declining health. Consider the difference in average premiums for a 55-year-old versus a 60-year-old based on benchmarks provided by the American Association for Long-Term Care Insurance (AALTCI). Women pay higher premiums due to the fact that, on average, they have longer lifespans.⁶

For a $165,000 level benefit policy, a 55-year-old male will pay an annual average premium of $950. At the age of 60, he will pay $1,200. A 55-year-old female will pay an average annual premium of $1,500 for a $165,000 level benefit policy. That premium increases to $1,900 for a 60-year-old female.⁷

Note that in addition to increasing premiums, the ability to qualify for LTCI also declines with age. According to the AALTCI, 12% of applicants between the ages of 40 and 48 had their applications denied or deferred, compared to 47% of applicants age 70 and older.⁸

Ideal age to buy long-term care insurance

While the timing on when to purchase LTCI is a very personal one that depends on your particular situation, financial goals, and personal health and family situation, there is some general logic that applies to the ideal time to purchase. Prior to your 50s, it is less likely that you will need long-term care. However, science argues that molecular-level changes trigger accelerated aging at around age 60, increasing the risk of your health declining more rapidly. Trying to access LTCI in your late 60s and 70s could be difficult or extremely expensive.

It may be ideal to purchase long-term care insurance in your 50s. At this time, you are likely still young and healthy and yet thinking more seriously about retirement. Consider Nancy, a healthy woman in her early 50s, who is financially stable and planning for retirement. She chooses to invest in an LTCI policy to ensure she can receive the care she needs without placing a financial or logistical burden on her children.

Bob, a new widower at 56, decides to invest in long-term care insurance knowing that the burden of care would fall on his children if he were to need assistance with these tasks.

Joan is a 42-year-old single mom of a 10-year-old. She decides to invest in a long-term care insurance policy at 42 knowing that she would need help with daily tasks if she were to become disabled between now and the time when her daughter becomes independent.

These examples demonstrate some of the motivations and reasons for the timing of investing in LTCI.

How to decide if you should get long-term care insurance

When deciding if an investment in an LTCI policy is right for you, there are many factors to consider. According to statistics from the U.S. Department of Health and Human Services, 70% of senior adults aged 65 and older will develop disabilities that require them to have long-term services and support.⁹ That could mean that you are one of millions of Americans who will require long-term care at some point in your senior years. As you consider if LTCI is right for you, ask yourself the following questions:

Do you have a family history of degenerative or chronic health conditions such as Alzheimer's disease, Parkinson's disease, Multiple Sclerosis or cancer that could leave you requiring long-term care?
Would you have to liquidate assets or take a significant bite out of your retirement savings to pay for long-term care if you needed it?
If you were to require care for an extended period of time, would your family members or loved ones undertake a significant financial or logistical burden?
Is there margin in your budget to invest in long-term care insurance? If there is insufficient budget for a traditional policy, would it be more affordable to invest in an LTC rider on an existing life policy or annuity?
Do you need a funding plan that accounts for the cost of inflation?

If you answered yes to any of these questions, then you may want to further investigate the value of LTCI, including speaking with a financial professional.

Alternatives to long-term care insurance

A traditional LTCI insurance policy is not the only option for preparing to fund long-term care. Whether the cost of traditional LTCI falls outside your budget, you are having difficulties qualifying or you simply find yourself doubting that you will need long-term care, there are many types of long-term care insurance as well as non-insurance options. Here are some alternatives to consider.

Self-funding

You may choose to set aside savings to pay for long-term care should you need it. The nice thing about self-funding is the flexibility it provides. You have immediate access to the funds if you need them or can easily reallocate them to pay for other expenses. The downside of self-funding is that many people don't have sufficient funds to set aside the money required to truly support the potential expenses associated with long-term care. Self-funding also presents a risk of using the money for other priorities, potentially leaving you with insufficient funds when the time comes for long-term care.

Hybrid life insurance policies

It's possible to purchase a rider on a permanent life insurance policy that enables the policyholder to access some of the cash value of the policy to help cover long-term care expenses if needed. This hybrid life insurance arrangement reduces the death benefit by the amount used for long-term care but still delivers the remainder to beneficiaries upon the policyholder's death. This option allows you to convert your life insurance policy into one that offers some financial protection in case you require long-term care. The downside of this type of policy is that the rider will increase the premiums on your life policy. Also, the LTC benefit payout is typically more limited than with a traditional LTCI policy.

Health savings accounts (HSAs)

HSAs offer a tax-advantaged way to save for healthcare and related expenses. If enrolled in a plan through your employer, you'll contribute to the HSA with pre-tax dollars. The money accumulates tax-free in your account and can be withdrawn tax-free to use for qualifying expenses. Qualifying expenses associated with long-term care include nursing and therapy care, but not room and board in a facility. It also includes medically necessary care and in-home care. The downside of HSAs is that expenses associated with long-term care may not qualify. In addition, the burden is on the accountholder to set aside savings, which can be difficult when also faced with other budgeting priorities.

Annuities with long-term care riders

Long-term care annuities combine a standard annuity with an optional rider that provides additional benefits if you need long-term care. If a qualifying event occurs — such as a medical condition that makes long-term care necessary — the rider activates, increasing your annuity payments for a set period to help cover care costs. This approach offers a way to turn your retirement income into a flexible resource if you require long-term care. One advantage of an LTC annuity is that the medical underwriting process is more streamlined for this type of product, making it easier to qualify for than a traditional LTCI policy. Disadvantages of this option include that there can be significant fees and expenses associated with annuities and the payouts from an annuity may be insufficient to pay for costs rising with inflation.

Common mistakes to avoid

Planning for long-term care can seem complicated and may not be top-of-mind for you. As you take steps to prepare for your financial future, here are some common mistakes to avoid.

Avoiding the subject — The worst mistake is to ignore the potential need for long-term care altogether. While no one wants to think about getting older and losing capabilities, it is a part of life. By being prepared, you can gain confidence and comfort in the fact that you have a plan in place to access the kind of care you desire in case of an unfortunate loss of capabilities.

Waiting too long — For many, long-term care is not on their radar until something happens. An unfortunate medical diagnosis for themselves, a family member or friend can usher in a stark realization of what life is like when you suddenly need assistance with daily tasks. By then, you may be unable to qualify for a policy or premiums may be out of financial reach.

Failure to compare options — Because there are so many different options for securing financial coverage for long-term care, it can be challenging to fully understand which option may be best for you. A careful analysis of each option is critical. Compare features like premium prices, benefits, elimination period, list of services covered and reliability of the issuing insurance company. If you need assistance, it may be helpful to contact a qualified financial professional.

Key takeaways

By planning when to invest in long-term care coverage, you can feel confident that you can access the care you require without burdening your family or loved ones. By strategically approaching when you will purchase LTCI, you can save money and better ensure that you can choose the option that works best for you.

Age can impact your ability to access long-term care because life insurance companies are taking on more risk the older you become. In addition, because there is a medical underwriting process associated with LTCI, the older you get, the more health conditions you may have that impact your ability to qualify for a policy.

There are several approaches to funding long-term care, including self-insuring, long-term care annuities, health savings accounts (HSAs) and other options. It's a good idea to obtain information about all of these and then carefully compare.

When it comes to long-term care, timing matters. By choosing to apply for LTCI while you are young and healthy, you can likely qualify for more options and lower premiums. For many people, applying when you are in your 50s is ideal.

If you'd like to learn more about preparing for your retirement or long-term care insurance, visit the Resources for you.

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