Posted .October 16, 2015
WAITING TOO LONG TO BUY
Many people don't even start thinking about long-term-care insurance until they reach 60. And by that time, it may be too late—either because the insurance is too costly or they simply can't qualify for health reasons.
As a result, for most people, the 50s are the best time to buy a policy. That's typically when premiums are most affordable and coverage is easiest to obtain.
For each year applicants in their 50s delay buying coverage, carriers typically raise premiums by 3% to 4%, simply because they are a year older, says Dawn Helwig, a principal and consulting actuary at Seattle-based Milliman Inc. In contrast, for every year someone in their 60s waits, they can expect to pay an additional 6% or more, she adds.
Those who wait may pay higher premiums for other reasons, too. Over the past decade, carriers struggling with losses on existing policies have raised the premiums on new policies an average of 4% to 8% a year, depending on the features, according to Milliman.
Consider a 65-year-old man who purchases $110,000 of coverage with benefits that grow 5% a year. To secure the same coverage 10 years earlier, at age 55, he would have paid approximately $1,032 in annual premiums, says Ms. Helwig. But because he waited, his annual premium is now about $2,770. Assuming he lives to age 85, he will pay a total of about $55,400 in premiums—or some $24,400 more than he would have spent had he bought at age 55 and lived 30 years.
Those who wait also run the risk that their health may deteriorate. Carriers, which have become stricter about how they underwrite policies, reject about 25% of applicants between ages 60 and 69, according to the American Association for Long-Term Care Insurance. They also charge those in relatively poor health as much as 40% more, says Ms. Helwig.
BUYING ON PRICE ALONE
The gap between the least- and most-expensive policies can be wide. According to the American Association for Long-Term Care Insurance, a 60-year-old couple can expect to pay an annual premium that ranges from $3,025 to $6,500 for $164,000 of coverage that grows 3% a year.
But while price is important, so is reliability, says Michael Kitces, director of planning research at Pinnacle Advisory Group Inc. in Columbia, Md. Mr. Kitces says consumers should buy from a large, stable carrier with the resources to still be around when the coverage is needed. He recommends people limit their shopping to big diversified carriers with claims-paying-ability ratings of single-A or better.
Mr. Kitces suggests that prospective buyers work with agents who specialize in long-term-care insurance. (Some carriers, including Northwestern Mutual Life Insurance Co. and New York Life Insurance Co., generally work only with their own agents, so consumers may need to consult with more than one agent.) Consumers also should check the agent's license status and disciplinary history with their state's insurance department.