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2007 LTC Insurance Price Index Highlights Benefit Of Buying Early

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A 55-year-old individual considering long term care insurance protection could expect to pay premiums of $665 a year if married or $1,075 if single, according to the 2007 Long Term Care Insurance Price Index published by the American Association for Long Term Care Insurance, Westlake Village, Calif.

In comparison, a 65-year-old purchasing comparable coverage would pay $1,292 a year if married or $1,923 if single. The costs are roughly the same as in 2006, says AALTCI.

Jesse Slome, executive director of the AALTCI, says the data shows LTC coverage is less expensive than many think.

The annual index measures current costs for top-selling LTC policies that offer the ability to receive care either at home or in a skilled-care facility.

In the past year, some carriers introduced new policies that provide lower-cost coverage for younger individuals who are in good health, as well as nonsmokers and individuals who are married or residing with a partner, notes Slome.

Consumers can also cut roughly 9% off costs by paying premiums annually versus monthly, plus another 8% just by being accepted for coverage before their next birthday, Slome notes.

The study compares costs for plans that provide benefits for 3 years, which Slome says is a basic level of protection for many.

The study priced plans that provide $110,000 or $172,000 in current protection ($100 a day or $150 a day for 3 years) for someone age 55. The figures in the index are averages.

Policies priced by Slome also included an inflation provision, which he asserts is an important LTC insurance option. The impact of 5% annual increases in daily benefits paid mean that a policy offering $100 in benefits at age 55 would pay $163 daily at age 65, $265 at age 75, and $339 at age 80, Slome notes.

In other words, $100-a-day benefits with 5% compounded inflation would pay $390,000 over 3 years starting when an individual reaches 80. If the benefit were $150 at age 55, it would pay $585,000 over 3 years starting at age 80, Slome notes.

Another reason for buying relatively young is the increased likelihood of obtaining a preferred health discount, Slome says. AALTCI found 44% of applicants in their 50s qualify for preferred health discounts, compared to 32% of those who wait until their 60s to apply.

Individuals age 55 considering a policy that currently provides $150 per day might expect to pay $1,027, assuming they qualify for spousal and preferred health discounts, AALTCI found. If they wait until age 65 to buy the same coverage but no longer qualify for the good-health savings, they would pay $1,939 yearly–assuming insurance prices didn’t increase over the decade they waited, Slome adds.

“But 10 years from now, you will actually need to buy a higher benefit amount to keep pace with inflation,” he points out.

In 10 years, at 5% annual growth, an individual would need to buy a $240 daily benefit to be equal with today’s $150-per-day benefit, according to the Price Index. The average cost for a $240-per-day benefit would range from $3,272 to $4,823.

The growth of new types of policies with relatively short coverage periods have helped bring the costs down, compared to the upscale policies that many agents and carriers have pushed in the past, Slome says.

“Especially to middle-income individuals, you have to start showing and telling the story that long term care insurance is affordable, and that’s one reason we did the Price Index,” he says. “It’s also the reason we chose the 3-year benefit period, because that’s adequate or more than adequate for about 92% of policyholders who’ve actually gone onto claim.”

Another development is that new policies will allow purchasers to change their coverage as their needs and assets change. “A new age of flexible coverage is upon us,” says Slome.

That’s another reason why it almost never makes economic sense for the consumer to wait to buy coverage, Slome argues.

“The industry needs to show people and financial planners that when it comes to planning long term care, it never pays to wait,” he says.

The fact that a 55-year-old or an even older individual can buy good coverage for around $1,000 is an important story the industry must start telling, he says. “Many see LTC insurance as being for the very wealthy, and that’s a place we don’t want to be.”