In another blog, a man in his late 60s was complaining that long-term care insurance (LTCI) he bought at age 65 was costing him $3,600 per year. He bemoaned not buying it younger so it would cost less.
It would have cost less because he would have paid premiums longer. Very few find themselves in nursing homes before age 85 — less than 4%. That is a 96% chance that if you buy LTCI at age 65 you will pay on it for 20 years – assuming that you do not get priced out of the market in that time.
Some agents selling LTCI promise that there will be no “rate” increase. However, that does not mean that the premium cannot go up. The company is still free to increase the cost of insurance for a class of customers. Insurance companies intend to make a profit. The executives would rather tarred and feathered than absorb increased claims costs without commensurate premium increases.
As a result of the run-up in claims in the last decade, longstanding customers have been subjected to large hikes in the premiums they pay. Many octogenarian insureds have been faced with the choice of absorbing a 100% increase in premiums or accepting a 50% decrease in promised benefits. A 65-year-old LTCI customer may be able to afford the premiums initially, but there is no guarantee he or she will not lose the coverage due to increased cost at the age it would likely be needed.
If invested, $3,600 per year would grow to almost $90,000, even at a measly 2% rate of return. Granted, the same policy might only cost $2,160 per year if purchased at age 55, but by age 85 the total paid in would be the same.
Compare the LTCI market 20 years ago to today’s. Many insurers no longer carry LTC policies and those that are still in that market charge much higher premiums. Do you think that LTCI will not change over the next 20 years? Consider investing an amount equal to the LTCI premium regularly instead of buying LTCI. For examples and further discussion, see “FAQ – Long-Term Care Insurance” at http://law-business.com/long-term-care-insurance/.
John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200
©2016 John B. Payne, Attorney