Even if you are in good health today, there's a good chance that you'll eventually need some type of long-term care. At least 70% of people over age 65 will need some long-term care, according to a study by the U.S. Department of Health and Human Services.
Without long-term-care insurance, which typically covers the cost of nursing homes, assisted living facilities and in-home care, the later years of life can be financially taxing for seniors and their families.
Average Costs of Long-Term Care
According to Genworth Financial's 2020 Cost of Care Survey, families will incur a great deal of expense related to long-term care. The average nationwide costs for various types of care are listed below.
- Nursing Home, Private Room: $105,850 per year
- Nursing Home, Semi-Private Room: $93,075 per year
- Assisted Living: $51,600 per year
- Home Health Aides: $24 per hour
- Adult Day Health Care: $74 per day
What is the best age to buy a long-term care policy?
There are risks and benefits to the timing of starting a long-term care policy. Lower policy premiums are an attractive benefit as people start to think about planning for their long-term care in their 50s, however a decade of premium payments may be money better allocated in a higher growth investment plan.
According to AARP the "sweet spot" when considering premium costs vs. total premium paid over the life of the policy is somewhere between the ages of 60 and 65. Of course, the risk of waiting is that with age there is a higher chance of developing a health condition or receiving test results indicative of a health issue.
Dr. John Connolly, President and CEO of Castle Connolly Medical Ltd, advises that when creating a healthcare management plan, anyone with significant assets and uncertainty regarding their long-term care should consider a long-term care policy the sooner the better since premium locks are lower the younger you begin. However, not any policy will do, and consumers should be careful to avoid paying years for a plan that they can't use.
He advises to look for a rating of A- or better from A.M. Best, an industry rating service based in Oldwick, NJ. A.M. Best and other services base ratings on an insurer's financial condition, operating performance, and claims-paying ability.
Additionally, Connolly advises to look for a company with a track record of at least five years and read policies with the proverbial fine-tooth comb. Ambiguities in wording, after all, are nothing less than escape hatches for insurers. Compare such criteria as how soon benefits start, how pre-existing conditions are handled, and whether there are any caps (maximum payable amounts) on benefits. Be certain to look for level and location of covered services. The long-term care policy you or your parents choose should clearly state that it pays full benefits for any type of long-term care services, including those provided at home. Otherwise, the covered person may be forced to foot the care bill entirely until sick enough to need a skilled nursing facility.
Factors to Consider When Buying LTC Insurance
The best rates and range of services are available when a person is still healthy. Putting aside the financial pros and cons, for health reasons late 50s is the best time to think about buying long-term care insurance because that's when a person is most likely to qualify for a policy and when premium costs are at their lowest. However, a policy may still be affordable and available for you or your parents even if they're in their 70s, depending on their health history.
Prior or existing health conditions can raise premiums or disqualify an individual for a policy. These conditions are revealed during underwriting, which usually includes a thorough familial health history and both an examination of medical records and a physical exam by an insurance company doctor.
The monthly premium at age 50 is significantly less than at ages 60 or 70. For example, the typical premium for a married 50-year-old in good health is approximately 27% less than the same coverage for a buyer at age 60, and 62% less than the same coverage for a buyer at age 70. However, when factored against total premiums paid to age 79, waiting until in your sixties offers the best combination of monthly payments vs total paid.
You can buy 5% compound inflation coverage which is a guaranteed coverage growth rate, so your insurance policy keeps up with the rising costs of long-term care.
The more types of care the policy covers, the higher the premium. While you're watching the wording of the policy, demand specifics on the word "substantial," as when the plan states that it pays benefits when the insured needs "substantial" assistance with two or more ADLs. If this word is interpreted as "hands-on," say when the patient needs to be fed, benefits will kick in much later than when "substantial" means "directional"--meaning that the patient merely needs to be told when to take a bite but can handle a spoon and fork. For the insured, the more liberal the policy, the better. As example, a qualified policy should be specific in types of assistance provided to include bathing--the first activity an elderly person would likely need help with--among the list of ADLs triggering the payment of benefits.
Waiting Period Before Benefits Begin
Also look to understand the "waiting period". Acute care for illness or injury is different from long-term care in terms of healthcare benefits. Oftentimes, a waiting period is specified before payment of long-term benefits begins. The waiting period is used to rule out that there is a chance an individual will recover and not need long-term care. Sometimes, the shorter the waiting period, the higher the premiums.
The IRS has not fully clarified its intentions toward long-term care insurance, but for now, be sure a policy is federally "qualified." It may eventually mean the difference between paying or not paying taxes on the plan's benefits.
Lastly, look for a plan that can be switched in either direction between qualified and non-qualified. Depending on which way the IRS goes, the benefits from a "non-qualified" plan (with more liberal wording than a "qualified") may someday become tax-free. In the meantime, more and more states with income taxes are also looking to offer tax breaks on long-term care insurance.