Should I Buy Long Term Care Insurance Now or Wait?
Anyone under the age of 80 has asked themselves whether it was a smart idea to jump in and buy a Long Term Care Insurance policy now or wait and save the money in their own investments. Unlike other insurance products where there is a possibility of an imminent claim once a policy is in force, it’s unlikely you’ll use your LTC insurance policy immediately after you’ve purchased it. We’ve sold thousands of Long Tem Health Care policies and have less than a dozen clients on claim within the first five years. This fact leads any rational planner to consider the best time to buy long term care insurance.
The Case for Waiting
The best argument for waiting to age 60 versus buying early is thoughtfully laid out by Dave Ramsey in a blog post here. In a nutshell, Dave Ramsey says that you’re better off to invest your money up to age 60 and then jump into a policy. Whether you take this advice or not depends on your faith in the market. Making this decision in 2000-2004 would have proved to have been an incorrect decision because the market has not delivered for many, while LTC rates have risen. A young 50-year-old could have secured a policy for less than half what it costs just a decade later, and would have that lower rate structure for the rest of their life.
The Case for Buying Early
Simply put, if you are planning on buying an LTC policy and are confident that you’ll be able to pay the premiums every year, you should purchase a policy as early as possible, generally starting at about age 50. Seeing thousands of clients inquire about this coverage and then decide to wait, we’ve noticed a substantial number of clients become uninsurable. It’s a terrible situation when we get a call from someone who said they needed a little time to think it over and then we find out that while they were “thinking” they had a stroke or were put on some new medication that makes coverage unattainable at any cost. These conversations can be heartbreaking and happen more frequently than you may think.
Buying when young and healthy is a responsible way to protect your family from the burden of developing and possibly providing a plan of care for you. A small portion of your annual returns can be earmarked for paying the premiums of a policy that may end of protecting your entire nest egg.
Take a look a this chart for Dave Ramsey’s math and this chart for a sample premium growth illustration of what you’d pay if you bought a $219,000 pool of money at age 45 versus waiting until you were 65.
The Math: Cost of Waiting
Here’s the math: If you buy at age 45, your premium is $1,280 (if single — for married people it will be much less). Let’s say you live to age 87 and then make a 3-year claim. You’d have paid $53,760 in premiums and in the three years of claim would have received benefits of $338,000. If you’d waited to buy at age 65, you’d have spent $108,944 in premiums.
Let’s assume you invested that premium of $1,280 from age 45 to 65 instead of buying a policy. With a 4% return, that savings would be $39,640 over the 20 years according to the MoneyChimp compound interest calculator. What if something were to happen to you between ages 45-65? No coverage would be in place with the riskier prospect of saving the money. The only way this strategy of not buying insurance and investing instead makes sense is if you are confident in being able to earn substantial interest while maintaining the health of a 45-year-old into your mid 60s. It can and has been done, but is a risky prospect for most.