When Should You Buy Long Term Care Insurance?
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UPDATED: Jul 16, 2021
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For many of us, the thought of buying yet another insurance policy is just too much. We already pay premiums for life insurance, health insurance, homeowners insurance and auto insurance for starters. Then there is government insurance, such as Social Security, Medicare, Medicaid, unemployment and worker’s comp, and you pay for that, too. Haven’t you paid enough of your discretionary income to cover you from risk from cradle to grave? The answer is no. None of it covers well the risk that one day you may need long term care. Medicaid and Medicare provide some coverage for some people, but neither provide coverage for quality care or, in most cases, personal care in a loving environment.
So, long term care insurance, fills a legitimate need for many people. Once you conclude long term care insurance is a responsible move, your next decision is when to buy it. You can’t imagine paying premiums on long term care insurance at the age of 20 when you probably don’t have the funds to pay the premium anyway. But you also realize you can’t buy it the day after you have a disabling stroke that leaves you dependent on others.
Then when should you buy long term care insurance? Most of us believe we won’t need long term care until we are “old”, whatever that means. But keep in mind that 43% of those receiving long term care are under age 65. (Thomas Day, “Long Term Care Insurance”, p.2) So, you may need it sooner than you think.
Insurance companies come out with new long term care policies approximately every two years. These new policies usually contain some additional benefits and features, but they also are more expensive than the previous policy would have been. New applicants for each new generation of long term care policies pay about 5% more each year than they would have if they had been able to buy the discontinued policy. So, the longer you wait, the more you are likely to pay for equivalent coverage.
Life insurance premiums have been going down in recent years because people are living longer, but, health insurance and long term care premiums have been going up for the same reason. We may be living longer, but we also may require more care in our old age. Your longer life may result in longer period of time in which you are not in good health and need long term care.
To purchase long term care insurance you will be need to answer questions about your health. The longer you wait to purchase long term care insurance, the greater the likelihood you will develop health conditions that either increase the premium for your long term care insurance because of the higher risk your health condition(s) create or prevent you from obtaining long term care insurance at all.
The cost of long term care insurance automatically increases with age. For younger ages the rates are relatively inexpensive, but at older ages, the rates can be prohibitively expensive – even if you are in good health for your age.
If that is true, some quick calculations show it will actually cost you less over time to buy your long term care insurance now rather than waiting to buy equivalent coverage in the future. In other words, the 20 year total cost of buying now will be less than the 19 year total cost of waiting to buy next year, or the 18 year total cost of the next year.
Given the odds that you will someday need some form of long term care, all else being equal, you should buy long term care insurance now, but with a caveat. You must be able to afford the coverage and be able to continue paying the premiums until you need the care. Some people wait, and some wait too long.
For a further discussion on whether to invest in other assets rather in a long term care policy, read our article, “Critical Question: Should I Invest in Long Term Care Insurance or Look at Other Investments?“