CLTC
Duane Lipham is a Certified Long-Term Care (CLTC) consultant who writes extensively on long-term...read more
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Financing Long Term Care
The Most Common & Expensive Long-Term Care Insurance Mistake
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There are many mistakes that can be made when considering long-term care insurance, and some of them can be very costly. Some of the most common mistakes include only getting quotes from one company, not researching long-term care costs, and relying on someone else’s opinion of what policy design is best for your circumstances.
All of these mistakes can prove to be expensive. For instance, I often see consumers who just don’t want to put in the time and effort necessary to learn about long-term care insurance choices. As a result, they will often take the first policy offered to them without shopping around. They may put in an application with the first insurance agent who contacts them even if that agent only represents one company.
This is rarely a good decision, as premiums can vary considerably from one company to another depending on the consumer’s age, health, and coverage needs. Without making a comparison between the top carriers in the long-term care insurance field, there is no way of knowing whether you have gotten the best deal possible.
However, the single most common and expensive mistake that many consumers make with long-term care insurance is to simply procrastinate making any decision at all. They may have heard that long-term care insurance is a good thing, and so they investigate the cost for themselves. But once they have all the facts and figures necessary to make an informed decision, they just decide to put it off for a while.
Unfortunately, deferring the decision for a year or so often turns into several years. In the meantime, the insurance premiums these consumers were originally quoted no longer apply, since long-term care insurance gets much more expensive the longer you wait to get it.
In addition, these procrastinators often develop illnesses that, at the very least, will lower their rate classification and make their premiums increase. In some cases, their health may even deteriorate so rapidly and unexpectedly that they are not insurable at all with any reputable carrier at any cost. They may complain about the insurance companies, but the fault is not with the carriers. Would you wait to purchase homeowners insurance until your house is on fire? Of course not. It’s just not a wise thing to do.
I often see folks who have procrastinated for quite some time about purchasing long-term care insurance who can now no longer afford the premiums because they waited too long or who may never be able to get the insurance again because of serious health issues that have suddenly arisen.
So, of all the mistakes that can be made when considering long-term care insurance, there is one that is by far the most common and expensive in my opinion: procrastination.
Until next time…Duane
Duane Lipham is a Certified Long-Term Care (CLTC) consultant. You can get more free information, news and articles regarding long-term care and aging at The Long Term Care Consumer Guide Web site and The Long Term Care Review Blog. |
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Read more about long-term care insurance (LTCI).
Posted in Financing Long Term Care: Duane Lipham, Insurance, Long-term Care Insurance (LTCI), Planning for Long Term Care
You failed to mention that LTC is horribly expensive ‘except’ for the wealthy. When it first come around I was 58, had a full time corporate job and it would cost me $900 a month + which was totally unaffordable and is now well over $1.000. I am not wealthy, your comments do not apply to most of the American population who are struggling with the basics of food, gas, and health insurance. Long Term Care is a rip off from insurance companies and I wish someone would address that, versus trying to get everyone to pay those ungodly premiums.
Alzheimer wards - cost $5,000 per month plus and that does not cover meds, diapers, etc. Yes, long term is costly in the end but I am really tired of the insurance “make a buck” theology.
Sandee, I do agree that LTCI is not for everyone and that affordability is a major component of a sound LTCI plan.
However, the figures that you used for your own coverage are way outside the norm. According to the 2007 Price Index published by the American Association for Long-Term Care Insurance, “A 55-year-old individual considering long-term care insurance protection can expect to pay $665-per-year if they are married or $1,075 if they are single. A 65-year-old purchasing comparable coverage will pay $1,292 (married) or $1,923(single)”. My experience agrees with these figures.
The point of my article is to emphasize that the insurance gets much more expensive the longer you wait to get it. Here are some further points made by the Price Index that illustrate this:
“Our studies show that more applicants in their 50s qualify for preferred health discounts than those who wait until their 60s to apply (44 % versus 32% 2),” Slome notes. Using the Association’s example, an individual age 55 considering a policy that currently provides $150-per-day benefit might expect to pay $1,027 (assumes they qualify for spousal and preferred health discounts). If they wait 10 years, until age 65, to buy the same $150-per-day coverage but no longer qualified for the good health savings, they would pay $1,939 yearly. “That assumes insurance prices don’t increase over the decade they waited,” Slome adds, “and most likely they will.”
“But, 10 years from now you will actually need to buy a higher benefit amount to keep pace with inflation,” Slome states. In 10 years, at five percent annual growth, one will need to buy a $240 daily to be equal with today’s $150-per-day benefit. The Association’s 2007 Price Index reveals the average cost for $240-per-day benefit will range from $3272 to $4,823. “It’s never an economic advantage to wait,” Slome says. “And, more important, a change in your health could make it impossible to health-qualify no matter how much you are willing to pay.”
As far as the cost effectiveness of LTCI is concerned, if we assume that a 55 year old in good health purchases a LTCI policy using the above-mentioned average annual premium of $1027, in 10 years their cost would be $10,270. Since these policies also include inflation protection, in 10 years the daily benefit would be over $200 a day(at 5% annual compounding), bringing the total pool of benefits for a 3 year policy (1095 days) to more than $219,000. Anyway you look at it, LTCI is a bargain if you pay out a little over $10,000 and get over $200,000 worth of benefits.
LTCI is not cheap for one simple reason - the cost of care is very expensive. However, LTCI premiums are affordable for a large portion of the population who have assets that they wish to protect or who want to maintain control over their own care and not burden their children or relatives with the cost of care.
I hope this helps put the cost of LTCI in more perspective.