Why It Pays to Buy Long-Term Care Insurance Early

Source: Thinkstock
Source: Thinkstock

Most people don’t want to even consider a time when they won’t be physically fit enough to take care of themselves. Unfortunately, the time may come when you will need long term care and won’t be able to work while you are recovering.

Long-term care insurance differs from traditional health insurance in that it is designed specifically to cover the costs of services and support for longer term care such as stays in rehabilitation facilities or nursing homes. In addition, it will also cover you for extended periods of time when you cannot work and when you must receive long-term home care.

In most cases, your traditional health insurance will continue to cover you until you can no longer work and must stay at home to recover from injuries or illness or go to a facility for proper recovery. It can also cover cases for the elderly who must spend time in long-term care facilities in order to ensure they are well cared for in their later years.

While this insurance can be quite handy for you if something does happen, it is also quite expensive, costing thousands of dollars per year for each individual covered.

Do you really need it?

Determining if you really need long-term care insurance is often one of the most difficult aspects of insurance shopping. Is it really worth the big expense? The answer really comes down to you. While some people will never need a long-term care solution in their lives, many more will. Having the safety net of long-term care insurance to fall back on can mean the difference between financial stability and bankruptcy.

In a study from the Center for Retirement Research, researchers concluded that of the people at age 65, 44% of men and 58% of women will need some time of long-term nursing home care during the course of their lives, although the stay will be short. Of those who need care, 50% of men and 39% of women will require a longer stay while 2% of men and 7% of women will remain in a nursing home for five years or longer.

So do you need it? It is really up to you. If you have the financial resources to take care of yourself in the event that you can no longer work, then buying long-term care insurance is probably not a good investment. However, if having to do without an income for an extended period of time could bring you to financial ruin, then it might be worth it to you even if it comes at a rather steep price.

Factors that determine the cost

There are many factors that determine exactly what you will pay for long-term care insurance. You must consider each and every one of these before you buy a policy, so you know exactly how much you will be paying for the policy as well as what benefits you can expect if you ever need to use it. When determining the cost of your new policy, consider using a cost calculator to help you determine what you need and make sure you don’t forget the following factors.

1. The age when you buy the policy

The general rule is the younger you are, the less you will have to pay for the policy. That is because the young tend not to need any long-term care benefits. The longer you wait to buy a policy, the greater risk you are to the insurance company and as your risk increases, so does your premium.

2. The maximum amount it will pay each day

Long-term care policies will pay you a certain amount for each day you need the added care. This money can then be used to pay your living expenses or even your expenses while you are in a long-term care facility such as a nursing home. The higher the amount per day, the more you will have to pay in premiums.

3. How long the policy will pay benefits

Each policy has a set limit on how many days, months, or even years that the policy will pay you before your benefits run out. The longer your policy will pay you, the better it is for you if you need to use it — but it will increase your premiums.

4. Other benefits you add to the policy

There are other benefits you can add to your policy, such as inflation protection. However, with each benefit you tack onto your policy, the price will go up.

Source: Thinkstock
Source: Thinkstock

When should you buy it

When people are young, they simply do not consider it necessary to purchase long-term care insurance, and that is understandable, as their chances of actually needing to use it are rather slim. However, investing in long-term care insurance earlier can save you quite a bit of money on your premiums over the lifetime of the policy.

For example, cost projections from Cornerstone Wealth Management show if a married couple at age 45 purchased a policy, it would cost an estimated $2,444 for a policy that pays a benefit of $200 a day. By age 80, that would amount to $85,540 paid by the policy. However, if the couple waited until age 50, the annual premium would rise to $3,797 or $99,722. By age 55, the annual premium would more than double to $5,579. When the couple hit age 60, the premiums would skyrocket to $8,197 annually or $108,563.

Buying the insurance younger is clearly the best option and will cost you less over the term of the policy. However, just because you reach age 45 doesn’t mean you need to run out and grab a policy. The American Association for Long-Term Care Insurance recommends to shop for long-term care insurance beginning at around age 50, and instead invest the money you would on your premiums before you reach middle age.

At the end of the day, you must look at your financial situation and what you hope to receive in benefits before you make the decision to buy a long-term care insurance policy. Examine your options and discuss with your partner when you should buy a policy and what you want to get from the policy. Once you decide, shop around and find the best policy that fits your needs, that is also at a cost that is affordable for you and your family. Remember, while you might not want to think about it, there could come a time when you will need long-term care insurance. It is never a bad idea to plan for the worst, so you can make sure your family’s financial assets remain intact even if something happens to you.

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