Save money on long term care insurance by getting a policy before you retire.
For most people, long term care becomes a concern when they get in the proverbial “retirement red zone” in their 50s. Retirement is squarely ahead of them and they are concerned about preserving their retirement assets. As a result, savings and investments become more conservative and long term care insurance is purchased to protect their hard-earned retirement savings.
Many prudent investors appreciate the need to insure against the potentially devastating cost of long term care, yet they hesitate to commit to buying coverage today. It’s a big commitment to make, so it’s easy to make excuses not to buy this valuable asset protection. Perhaps they would rather save the insurance premiums and invest the money. What ever the case, now just doesn’t seem to be the right time.
The problem with this kind of indecision is that it costs money. Lots of money. And unless they can magically earn a guaranteed tax-free 25% or more on their safe money investments year over year for the next thirty years (or win the lottery), there’s no financial advantage in waiting to buy coverage.
Why It’s Better To Buy Long Term Care Insurance Now
The two primary factors that determine the cost of long term care insurance are age and health. Every day you wait to insure, you’re risking the loss of your health or even losing insurability. That’s a huge risk and unfortunately many who wait will become uninsurable, but hopefully that will never happen to you. On the other hand, with absolute certainty you will get older each year and the cost for insurance will corresponding rise. That’s guaranteed.
And the cost for long term care and the insurance that pays for it is going up, up, up. The increased need for long term care with our aging population will strain the current capacity for providing this care. This will put additional inflationary pressure on the cost of long term care and insurance companies will have to adjust their rates up to make up for the funding shortfall in paying for this care. Raised demand and increased utilization along with inflation will push long term care insurance rates higher in the future, it’s just simple math.
In order to keep current policyholders rates level, increased rates are typically applied to new policies, so buying long term care insurance early is essentially purchasing coverage at a discounted future rate that you will have to pay if you decide to wait. Why would you wait to buy something that you know will only cost more in the future?
If you are healthy and at least 50 years old, there is absolutely no financial reason to wait to buy long term care insurance. As we get older, the risk of needing care increases and our chances of being accepted for long term care insurance decreases. All the while the cost of care and insurance both continue to rise. Buying long term care insurance early while you are young and healthy will literally save you tens of thousands of dollars over the life of a policy.
Save money on long term care insurance by choosing an inflation protection option that’s right for you.
Perhaps the most important component of a good long term care insurance plan is inflation protection. After all, buying coverage in today’s dollars will mean very little in twenty or thirty years or longer, so it’s critical to include inflation protection so your benefits continue to grow over time just like the cost for care will. At the same time, inflation protection is the most expensive feature of a long term care insurance plan, so it’s equally important that you choose your inflation protection option carefully. Prudent inflation protection selection can save you up to 15% on your long term care insurance premiums.
For many years, there were only a few inflation protection options to choose from. Applicants would often choose either a 5% compound interest feature (your benefit amount doubles every 14 years at this rate) or a 5% simple interest benefit (your benefit amount doubles every 20 years at this rate). The conventional wisdom held that individuals 65 or older could afford to insure with a simple interest strategy while it was important for individuals under the age of 65 to insure with a compound interest strategy.
Although 5% compound interest inflation protection is still recommended for applicants under the age of 65, it can sometimes be cost prohibitive. As a result, many long term care insurance companies now offer additional inflation protection options to make this valuable insurance more affordable. Never the less, since the kind of custodial care that is most typically provided in a long term care setting has been growing an average of almost 4% per year, most long term care advisers don’t recommend selecting a compound interest rate any lower than 3.5%.
Save money on long term care insurance by accelerating the payment of policy premiums.
Most people who buy long term care insurance pay their premiums annually on a lifetime basis. In other words, they pay a yearly premium each and every year until they need long term care. Once they go on claim, they no longer are responsible for paying long term care insurance premiums. Annual lifetime premiums are a convenient way for most applicants to fund their long term care policy.
One way to save money on long term care insurance is to accelerate the payment of your policy. Most long term care insurance companies allow you to fully pay a policy in one, five, or ten payments – or until you’re age 65 – and then you’ve got a fully paid up long term care insurance policy. At this time, your long term care insurance policy is completely funded and you no longer have to pay insurance premiums.
Long Term Care Insurance Accelerated Pay Options
- 10-Pay – A 10-pay option allows you to pay your long term care insurance premiums over a period of 10 years, at which time your policy is paid up.
- Pay-To-65Â – A Pay-To-65 option allows you to pay your premiums until you reach the age of 65, at which time your policy is paid up.
Although accelerating the pay of your long term care insurance requires significantly larger premiums, many choose a limited pay option so their policy is paid up at the time they retire or shortly thereafter. In addition to having a paid up long term care insurance policy they don’t have to budget for in retirement, they have also locked in premium savings since insurance companies cannot raise rates after the final payment on your policy.
Those with the income and savings to accelerate the payment on their long term care policy can save 10% or more long term care insurance.
Save money on long term care insurance by designing a plan that doesn’t overbuy coverage.
In the early days of long term care insurance, many were advised to purchase a long term care insurace benefit that equaled the average cost of care in their area for an unlimited or lifetime benefit period. The reasoning was simple – since you don’t know how long you’ll really need long term care, you might as well buy enough to coverage to last a lifetime just to be safe, right?
While an unlimited lifetime long term care benefit sounds good, the stark reality is this kind of Cadillac coverage is simply unaffordable for most people. In fact, it’s unaffordable for most insurers as well; most long term care insurance companies don’t even offer a lifetime benefit any longer. Since lifetime coverage is not a viable option for most, many today recommend a short and fat policy design to get the most bang for your long term care insurance buck.
A short and fat long term care insurance plan provides coverage for a “short” duration (or at least shorter than a lifetime) with a “fat” (or large) daily benefit. The reasoning behind this plan design is also quite simple: Half of all long term care needs last three years or less and 80% of long term care needs last four years or less. Therefore why over insure with lifetime coverage when you will probably never need it? This is a simple way to save on long term care insurance premiums by purchasing only the coverage you are likely to need in retirement.
Lifetime benefits are nice if you can afford them, but most will be better financially served with a short and fat plan design that will cover most or all of their long term care costs in the early years of a claim when they are most likely to need care.
Save money on long term care insurance by selecting a top rated insurance company.
Believe it or not, you can save money on long term care insurance just by choosing the right long term care insurance company. Some insurance companies, particularly those newer to the business, have written a lot of new long term care insurance policies by offering low long term care insurance rates. Unfortunately, these low introductory rates are not high enough to cover the liability these insurance companies have assumed. As a result, these companies will eventually raise rates to make up for the shortfall. So let the buyer beware – what might look like a good deal today might be a bad deal when reviewed years down the road.
Long Term Care Insurance Company Financial Strength
The most important thing in selecting a long term care insurance plan is to make sure that it’s financially strong. You probably won’t need your long term care benefits for twenty or thirty years, so it’s important to buy insurance with a company that is sure to be there in twenty or thirty years when you need care. Be sure to select a long term care insurance company with a top rating from one of the independent insurance ratings companies.
Long Term Care Insurance Experience and Rate Stability
It’s also important to select a long term care insurance company with at least 15-20 years experience in the long term care insurance business. This experience is important because it means the carrier has a long history of both collecting premiums and, more importantly, paying long term care claims.
Long term care insurance premiums are designed to be level (in other words, they’re designed not to change) and insurance companies can’t increase your premiums due to changes in your age or health. However they can file a rate increase for an entire class of policyholders or all policy holders on a specific contract form in any given state. Of course, insurance companies try to avoid raising rates on their customers since this is not a good way to maintain consumer confidence. Before you buy, learn whether an insurance company has a history of rate increases.
Selecting a long term care insurance companies that is fiscally sound, has decades of experience in the business, and has a proven claims paying track record and history of stable premiums is one of the best ways to save money on long term care insurance.
