An example “Cost of Waiting” for a real-world client
Two years ago, a client reached out for some LTC Insurance quotes. The plan she wanted for her husband and herself was simple enough:
- Three year benefit
- $130/daily benefit
- 5% Compound Automatic inflation protection
- In 2010, we came up with a premium of $1,863 for Genworth and $2,192 for John Hancock.
They are residents of Wisconsin, and at the time they were 53 and 52. Two years later, a new generation of products, and $13 of inflation growth, and the exact same plan costs $2,303 for Genworth and $4,935 with John Hancock.
Think about that: Growing from $1,863 to $2,303 in just two years. That’s a 23.4% increase, just from waiting.
Counterargument: What About Premiums Saved?
The couple waited two years and saved $1,863 per year, or about $3,700 by not buying. That is money in their bank account and does put them ahead of the curve, but only for 8 and a half years.
Assuming the sample couple here buy the new policy, they are behind on inflation and in just nine years they will be caught up from any savings on waiting, plus they will have a $440/year extra payment.
Moral of the story
The takeaway is to buy this when you’re ready, but not a moment later. With the LTC insurance market changing year to year, costs for new business rise regularly, you’re getting older, and inflation is chipping away at benefits. Just like Term Life Insurance, the deck is stacked so that waiting is actually more costly than buying at an earlier age.