"Some Long-Term Care Insurance is Better Than None",
SmartMoney, Jan. 2012
Many people have heard that LTC insurance is expensive. It can be, but may not be nearly as expensive as the actual cost of long-term care. A good rule of thumb is that the annual premium you pay is less than the cost of just one month of long-term care! The good news is that you have some control over what it will cost. If you plan ahead of time, and purchase LTC insurance when you are younger and when you are in good health, the premiums for LTC insurance can be very affordable. You also control the cost by the benefits that you choose.
The cost of a LTC insurance policy depends on the following factors:
1) The benefits you choose
2) Your age
3) Your health
4) Your marital status ("married" rates apply for any couple, even same-sex couples living together)
5) Other discounts - group, association, other policies with same company, etc.
Tip:
Most companies consider your actual age at the time of your application. So if you have a birthday coming up, now is the time to apply to "save your age" which could save you premiums over the lifetime of the policy!
The old saying, "you get what you pay for", applies here. LTC insurance is the one insurance product that you do not necessarily want to get the best price on. Most major, reputable carriers price their products similarly. If you find a carrier charging considerably less, that should cause you some concern as to future premium stability.
"It is unwise to pay too much, but it is worse to pay too little. When you pay too much, you lose a little money - that is all. When you pay too little, you sometimes lose everything because the thing you bought was incapable of doing the thing it was bought to do. The common law of business prohibits paying a little and getting a lot. It can't be done. If you deal with the lowest bidder it is wise to add something in for the risk, and if you do that you will have enough to pay for something better." - John Ruskin
Cost of Waiting Example
Many people think that they will save money spent on premiums if they just wait to buy LTC insurance. This is not necessarily true. The longer you wait, the more you may pay in premiums over your lifetime.
Each year that you wait:
Example:
The following example uses a long-term care insurance policy that includes $150 daily benefit, four-year benefit period, 90-day elimination period, and inflation protection with a major carrier.
Bob is 50 years old and the annual premium is $1,338.75 in this example. If he paid this premium until he was 85 years old, he would have paid in a total of $46,856.25 in premiums.
If he waited just five years to purchase the same policy the annual premium for the same plan would be $1,974.37. The increased premium takes into account that Bob is now five years older and he should then purchase a higher daily benefit as the cost of care - and the earlier-purchased policy has increased. If he paid until he was 85 years old he would have paid in a total of $59,231.10.
Waiting five years could have cost Bob an extra $12,374.85 in premiums over his lifetime - it did not save him any money, and he was also uninsured for five years.
Level Premiums
Many policies are sold as being "level premium" for the life of the policy. Unfortunately, many consumers mistakenly believe that this means that the cost of the policy will not increase. While LTC insurance premiums are designed to remain level, in reality, all insurance companies reserve the right to increase premiums. Any increase must be done on a state-wide, "class" basis, it must be reviewed and approved by the state department of insurance, and generally the increased premium can only be used to pay for unexpected higher claims. For new policies, there are very strict legal limits about why and how much a company can increase future premiums.
Check with your agent or state insurance department to find out about the premium-rate increase histories of both the company and the specific policy you are considering. Most companies have raised rates. It's important to consider a company's overall, long-term pricing strategy, the size of any previous increases, and its experience with LTC benefits: both pricing and paying claims.
The cost of a LTC insurance policy depends on the following factors:
1) The benefits you choose
2) Your age
3) Your health
4) Your marital status ("married" rates apply for any couple, even same-sex couples living together)
5) Other discounts - group, association, other policies with same company, etc.
Tip:
Most companies consider your actual age at the time of your application. So if you have a birthday coming up, now is the time to apply to "save your age" which could save you premiums over the lifetime of the policy!
The old saying, "you get what you pay for", applies here. LTC insurance is the one insurance product that you do not necessarily want to get the best price on. Most major, reputable carriers price their products similarly. If you find a carrier charging considerably less, that should cause you some concern as to future premium stability.
"It is unwise to pay too much, but it is worse to pay too little. When you pay too much, you lose a little money - that is all. When you pay too little, you sometimes lose everything because the thing you bought was incapable of doing the thing it was bought to do. The common law of business prohibits paying a little and getting a lot. It can't be done. If you deal with the lowest bidder it is wise to add something in for the risk, and if you do that you will have enough to pay for something better." - John Ruskin
Cost of Waiting Example
Many people think that they will save money spent on premiums if they just wait to buy LTC insurance. This is not necessarily true. The longer you wait, the more you may pay in premiums over your lifetime.
Each year that you wait:
- Increases the annual cost of the insurance because you have to buy a higher daily benefit due to the fact that the cost of long-term care has gone up - and considering that a policy purchased earlier with an automatic inflation benefit will have increased it's value.
- You are a year older so your premium will increase.
- You remain at risk in the event you have a health change and cannot qualify for coverage.
Example:
The following example uses a long-term care insurance policy that includes $150 daily benefit, four-year benefit period, 90-day elimination period, and inflation protection with a major carrier.
Bob is 50 years old and the annual premium is $1,338.75 in this example. If he paid this premium until he was 85 years old, he would have paid in a total of $46,856.25 in premiums.
If he waited just five years to purchase the same policy the annual premium for the same plan would be $1,974.37. The increased premium takes into account that Bob is now five years older and he should then purchase a higher daily benefit as the cost of care - and the earlier-purchased policy has increased. If he paid until he was 85 years old he would have paid in a total of $59,231.10.
Waiting five years could have cost Bob an extra $12,374.85 in premiums over his lifetime - it did not save him any money, and he was also uninsured for five years.
Level Premiums
Many policies are sold as being "level premium" for the life of the policy. Unfortunately, many consumers mistakenly believe that this means that the cost of the policy will not increase. While LTC insurance premiums are designed to remain level, in reality, all insurance companies reserve the right to increase premiums. Any increase must be done on a state-wide, "class" basis, it must be reviewed and approved by the state department of insurance, and generally the increased premium can only be used to pay for unexpected higher claims. For new policies, there are very strict legal limits about why and how much a company can increase future premiums.
Check with your agent or state insurance department to find out about the premium-rate increase histories of both the company and the specific policy you are considering. Most companies have raised rates. It's important to consider a company's overall, long-term pricing strategy, the size of any previous increases, and its experience with LTC benefits: both pricing and paying claims.
