Margie Barrie, a veteran long-term care insurance agent, marketer and educator, has been writing articles about long-term care planning and related issues for years.
Here, she takes a question about clients who are wondering when they should buy LTCI.
Question: I’m working with a number of clients in their 40s. They ask me: “Does it make sense to buy long-term care insurance now, or should we wait?” What should I advise them to do?
Answer: One of the secrets in this industry is what I call “the high cost of waiting.” It means that the younger you are when you purchase the policy, the less you will pay over the lifetime of the policy.
I too am working with younger clients. I just provided coverage to Bill, a policeman in his 30s. He saw one of his co-workers get shot; he will now be in a wheelchair for the rest of his life.
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Here’s a good guideline to use. It may vary by specific policies, but overall if you are 45 years of age now, and you wait 20 years to buy a policy, until age 65, it will be about 3.5 times more expensive – 3.6 times to be exact.
There are two reasons for that. First, because the premium is based on your age at time of application, since you are older, it will be higher. And second, you will need to take a higher daily benefit to keep pace with inflation.
For a guide to how to talk about this with the clients, read on.
Especially in the long-term care insurance market, the early bird gets the deal. (Image: Thinkstock)
What to tell your clients
During my client presentation, I explain the advantages of not waiting by discussing these eight points.
Lower premiums: Premiums are calculated on your age when signing the application. So, the younger you are when you buy the coverage, the lower the premium.
Insurable: Underwriting standards continue to get more restrictive. Even if you qualify to buy coverage now, you may not qualify later if underwriting standards change.
Preferred rates: People’s health is usually better at a younger age. If you apply now, you’re more likely to get preferred rates, which can lead to significant savings.
Spouse discount: Spouses may become ineligible for coverage because of poor health. For the spouse who stays healthy, that would increase the premiums at the time of purchase because the spouse who stays healthy would not be eligible for a spouse discount.
History of Alzheimer’s disease in the immediate family: The carriers have been tracking family history for years. Now, two of the carriers limit the amount of coverage if a parent had Alzheimer’s. Because of concerns about genetic inheritance, I strongly advise you, and other clients, that, if there is a family history of Alzheimer’s or Parkinson’s, you should apply for long-term care protection now. And, if your children are in their 20s and 30s, I strongly suggest that they apply for protection, too.
Assets: Buying long-term care insurance now can protect them.
Choices: Owning long-term care insurance means you have choices and control over where you can receive care. That means you will be able to stay at home as long as possible. Claims figures are showing that about half of care is now being received at home.
Overall cost: If you buy now, when you’re young, you’ll pay less money over the life of the policy.
Here’s an example of what happens when your clients buy long-term care insurance coverage when they’re young.
John Doe is now a married man at age 45. With a spouse discount, a $4,500-per-month benefit, 3 percent compound inflation protection, 2.8 years’ policy duration and a standard rating, his annual premium would be $925.
If he waits 10 years, until he’s 55, he would have to increase the monthly benefit amount to $7,330, because of increases in health care costs, and his annual premium would be $1,873.
Here’s what his premiums paid to age 90 would look like:
If the policy is purchased at age 45: $41,629.
If the policy is purchased at age 55: $65, 547.
That means John Doe’s cost of waiting for 10 years would be $23,918.
Here’s a suggestion: If you use the Straticision software, you can provide your client with a customized cost-of-waiting illustration by clicking on “print” on the left-hand side of the toolbar and then on the cost-of-waiting option.
Margie Barrie, an agentwith ACSIA, has been writing the LTC Insider column since 2000.