Imagine you own a crystal ball. That crystal ball tells you there is a 0% chance you’ll die in the next 10 years. You’re not going to buy a 10-year term life insurance policy. Most people in their 30s, 40s and 50s would assess their odds of ending up in a nursing home in the next 10 years at the same odds. While that would not be totally accurate, it is unlikely. That’s just the rub with insurance. No one wants to pay a premium for something they won’t use.
At the same time, no one wants to be in the situation where they need to use it. When it comes to long-term care insurance, that often leads to folks waiting too long. But what is the optimal age to buy so that you’re not paying for too long but also not paying too much?
This is a complicated question, as it depends on so many personal factors. However, here are some rules of thumb for when to buy long-term care insurance: According to AARP, the best age range is between 60 and 65, with a significant assumption that you will still qualify for care. According to the American Association for Long-Term Care Insurance, 30.4% of people between the ages of 60 and 64 will be declined for the insurance. Partly for this reason, they recommend applying for coverage in your mid-50s.
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There are many personal factors to consider when figuring out the best age for you. Below we cover some, but not all, of them.
1. Health
When I was affiliated with ING early in my career, I was trained to say, “You’re insuring your insurability.” I don’t disagree with this sentiment. If you have a family history of something that may preclude you from getting coverage later in life, that may be a reason to start earlier.
2. Gender
For about a decade, women have had to pay more for insurance because they tend to live longer and therefore need long-term care for a lengthier period than men. For this reason, paying policy premiums over a longer period is more impactful. Therefore, assuming coverage can be obtained, starting as late as 65 for women tends to be more affordable.
3. Income
Because of high claim rates, LTC insurance is expensive. Traditional policies also don’t guarantee, and probably won’t have, level premiums. This is one of the reasons many opt for the hybrid life insurance or annuity options.
It is much less painful to pay a premium while you’re working than it is to pull it from your savings in retirement. While this one is less quantitative, it can help to align your premium with your retirement date. So if you are 55 and plan to retire at 65, buy a policy that is paid up in 10 years.
All insurance is a risk-management tool. If you have a lower risk tolerance, you are more likely to get the coverage and to get it early. Your financial plan can point out how much of a risk this is. For example, someone with a large balance sheet may be able to self-insure. If you want to build your plan or reaffirm your numbers, you can use a free version of our software.
In my experience, the biggest factor influencing when and if you get LTC insurance is really quite simple: Do (or did) your parents need it?
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