What's the best age to buy a long-term care policy? And how do you know when it's time to start using it?
A person turning 65 these days has a 70% chance of needing long-term care (LTC) in their lifetime. Commercials during open enrollment may lead viewers to think that Medicare will cover that long-term care; but that’s misleading. Depending on your plan, Medicare may or may not cover short-term home care, like a one-hour bath visit, after a hospital stay. But it definitely does not cover long-term care.
The sky-high cost of long-term care, and the burden that caregiving can place on a family, both contribute to some people’s decision to purchase a long-term care insurance policy.
But no one in their twenties or thirties has long-term care insurance (LTCI). So, when’s the right age to start investing in a policy? And for those who bought LTCI and have been paying the premiums, another question arises: how do you know when the time has arrived to actually use it?
What does a long-term care policy cover?
First of all, let’s be clear what we’re paying for when we’re paying between $150 and $500/month for LTCI. A majority of long-term care policies require medical underwriting, but they cover mostly non-medical services. LTC policies generally cover personal or custodial care; that is, support with activities of daily living (ADLs) such as eating, bathing, and dressing. Most also include medical services like skilled nursing care or occupational therapy. LTC coverage may provide accommodation in a skilled nursing facility, and/or provide for a home health aide. Bottom line: policies vary, so it’s essential to review exactly what is covered before signing on.
When is the best time to buy a long-term care policy?
Most experts recommend buying a long-term care policy in your mid-50s to mid-60s. At that age, most people are likely to qualify for a lower premium, but will avoid paying it for a lot longer than they need to. As women have longer life expectancies, they’ll pay more than men at every age.
Don’t wait until after 70 to purchase a policy. At that age, your chances of getting approved at all drop by 50%, and waiting until age 75 could mean your premium is 91% more than that of a 55 year old. (Of course, that 55 year old has been paying their lower premium for an extra 20 years.)
A new offering that could be a solid choice, especially for those who are older and have pre-existing conditions that would make traditional LTCI prohibitively expensive, is hybrid LTC and life insurance. These policies are not exactly use-it-or-lose-it, as unused LTC benefits will be paid out to family members in a death benefit.
For some people, LTCI may not make sense as an investment if it interferes with other financial goals. Other forms of savings may amount to “self-insurance,” for example, if you have saved enough in retirement accounts or can access equity through a reverse mortgage to pay for long-term care. Always do the math and talk to a financial advisor to determine your specific needs.
How to tell when it’s time to start using the policy?
Unlike with a whole life insurance policy, there’s no cashing out a LTCI policy. In other words, it’s “use it or lose it” when it comes to those benefits. But what’s the right juncture to start drawing on your coverage?
One thing to be aware of is the elimination period of 30, 60, or 90 days between the time that a benefit trigger occurs, and being able to receive payment. A benefit trigger is defined by the insurance company and determined by a nurse or social worker. Most often, a benefit trigger is defined through ADLs or cognitive impairment. For example, when a policy holder needs help with two or more of six ADLs, and/or when they’re diagnosed with cognitive impairment, the LTC benefits are triggered.
If you think it’s likely that you or your loved one will want to start using a LTCI policy soon, keep in mind that there will be 30, 60, or 90 days during which you’ll have to pay for services–at home or in a skilled nursing facility–out of pocket. The length of the elimination period is one factor to consider when choosing a policy.
When the policy holder qualifies to file a claim, based on the benefit triggers in place, it can still be difficult to decide that now is the time to use the benefits. Most policies have a lifetime limit of a set number of years, and the policy will be exhausted after the limit is reached. These questions can help with decision-making:
- Would I rather preserve benefits for later, or reduce financial strain now?
- How much longer do I expect to live? (How many years or months do I likely have to draw down the benefits?)
- Will delaying compromise my independence or safety?
- Are family caregivers becoming exhausted? Are tasks like bathing or mobility becoming unsafe for caregivers?
- If I delay, will I be able to financially cover the weeks/months of care during the elimination period?
- Would it help me to have a case manager to review whether or not a benefit trigger has occurred? (Starting the inquiry doesn’t obligate you to proceed with a claim.)
None of these LTCI decisions are easy–not for the policy holders, nor for their family members and care partners. But at any stage in the process, it can be a relief to step back, take a look at the big financial picture, and plan together with a financial expert.
This article is not intended to be a substitute for professional financial advice from a qualified financial advisor.
Additional sources:
https://acl.gov/ltc/costs-and-who-pays/what-is-long-term-care-insurance
https://acl.gov/ltc/basic-needs/how-much-care-will-you-need
https://acl.gov/ltc/costs-and-who-pays/what-is-long-term-care-insurance/what-long-term-care-insurance-covers
https://www.aarp.org/caregiving/financial-legal/when-to-buy-long-term-care-insurance/
https://www.agingcare.com/questions/when-do-you-start-using-ltc-plan-to-pay-for-care-492398.htm
https://acl.gov/ltc/costs-and-who-pays/what-is-long-term-care-insurance/receiving-long-term-care-insurance-benefits
https://www.agingcare.com/questions/when-do-you-start-using-ltc-plan-to-pay-for-care-492398.htm
