What’s The Right Season for Long-Term Care Planning?
Posted by Dorothy at 8/24/2009 3:33 PM 
Categories: basics
Tags: long-term care ltc insurance retirement long-term care insurance
Categories: basics
Tags: long-term care ltc insurance retirement long-term care insurance
The days are growing shorter and we all know what that means: Fall is on the way. Clubs and associations resume meetings, television shows launch new seasons, kids go back to school and it’s time again to get serious.
Is this the best season to consider purchasing long-term care insurance? If you think you may want it at anytime in the future, now’s the best time.
It’s an especially good time if you have a birthday coming up in the next three months. Long-term care policy premiums are based on your age when you apply; it would be a shame to pay a higher rate for years simply because you delayed your application for a few weeks.
How much more would a policy cost if you wait until after your next birthday to apply? Although the exact answer varies depending on the insurance company, the policy design you select, your age and your health, you can expect to pay approximately 10% higher premium for each year that you delay purchasing equivalent coverage.
By equivalent coverage, here’s what I mean. Suppose you are looking at a policy with a $200 daily benefit and the policy includes 5% inflation protection. If you delayed the purchase for one year, you would then need to purchase a policy with a daily benefit of $210 to equal the benefit of the previous policy.
If you are getting the feeling that putting off buying long-term care insurance doesn’t make sense, you understand intuitively how insurance works.
While an insurance company looks at a variety of factors in pricing a policy, let’s focus on the most relevant factor: your current age relative to the typical claim age.
Actuaries calculate how many years you are likely to pay premiums before making a claim. Now suppose the typical age of claim is 82. If you purchase a policy at age 79, you will pay for three years before the insurance company is on the hook to start paying your policy benefit.
However, if you went on claim at age 82, but purchased your policy at age 49, you would have paid premiums for 33 years. It doesn’t take a rocket scientist to understand that the premium at age 49 can be significantly less, simply because the insurance company has many more years to cover their expenses, set up policy reserves and so on, until claim time.
Here’s the kicker: the 49-year-old who purchases a policy has coverage for 33 years. That policy can pay for long-term care, triggered by any accident or illness, for decades. And you have locked in coverage when young and healthy. As long as you pay your premiums, coverage can’t be cancelled.
Here’s kicker number two: Assuming the same claim age, although the 79-year-old will only pay for three years, he or she typically would pay no less than the 49-year-old when you take into account the time value of money, depending on the interest rate, regardless of their age when they purchased the insurance.
So when is the best time to buy long-term care insurance? Since you can’t save money by waiting, the best time is now. The cost only increases if you wait, and so does the likelihood that, like the ducks and geese of summer, your health goes south. Then you can’t get coverage at any price!
Dorothy McMahon, president of McMahon and Associates in Bloomfield Hills, is a specialist offering “Straight Talk about Long-Term Care Insurance.” She has brought her program to professional associations, family support groups, meetings, and conferences. Contact her at (248) 844-9787 or LTCINSUSA@AOL.COM and visit www.mcmahonltcins.com.
Is this the best season to consider purchasing long-term care insurance? If you think you may want it at anytime in the future, now’s the best time.
It’s an especially good time if you have a birthday coming up in the next three months. Long-term care policy premiums are based on your age when you apply; it would be a shame to pay a higher rate for years simply because you delayed your application for a few weeks.
How much more would a policy cost if you wait until after your next birthday to apply? Although the exact answer varies depending on the insurance company, the policy design you select, your age and your health, you can expect to pay approximately 10% higher premium for each year that you delay purchasing equivalent coverage.
By equivalent coverage, here’s what I mean. Suppose you are looking at a policy with a $200 daily benefit and the policy includes 5% inflation protection. If you delayed the purchase for one year, you would then need to purchase a policy with a daily benefit of $210 to equal the benefit of the previous policy.
If you are getting the feeling that putting off buying long-term care insurance doesn’t make sense, you understand intuitively how insurance works.
While an insurance company looks at a variety of factors in pricing a policy, let’s focus on the most relevant factor: your current age relative to the typical claim age.
Actuaries calculate how many years you are likely to pay premiums before making a claim. Now suppose the typical age of claim is 82. If you purchase a policy at age 79, you will pay for three years before the insurance company is on the hook to start paying your policy benefit.
However, if you went on claim at age 82, but purchased your policy at age 49, you would have paid premiums for 33 years. It doesn’t take a rocket scientist to understand that the premium at age 49 can be significantly less, simply because the insurance company has many more years to cover their expenses, set up policy reserves and so on, until claim time.
Here’s the kicker: the 49-year-old who purchases a policy has coverage for 33 years. That policy can pay for long-term care, triggered by any accident or illness, for decades. And you have locked in coverage when young and healthy. As long as you pay your premiums, coverage can’t be cancelled.
Here’s kicker number two: Assuming the same claim age, although the 79-year-old will only pay for three years, he or she typically would pay no less than the 49-year-old when you take into account the time value of money, depending on the interest rate, regardless of their age when they purchased the insurance.
So when is the best time to buy long-term care insurance? Since you can’t save money by waiting, the best time is now. The cost only increases if you wait, and so does the likelihood that, like the ducks and geese of summer, your health goes south. Then you can’t get coverage at any price!
Dorothy McMahon, president of McMahon and Associates in Bloomfield Hills, is a specialist offering “Straight Talk about Long-Term Care Insurance.” She has brought her program to professional associations, family support groups, meetings, and conferences. Contact her at (248) 844-9787 or LTCINSUSA@AOL.COM and visit www.mcmahonltcins.com.
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