Q. I know that it definitely makes sense to purchase long-term care insurance at a younger age instead of waiting. How can I effectively explain those advantages to prospects?
If clients ever expect to own a LTCI policy, it's much better to purchase it now while the premiums are affordable. It makes no sense to wait.
Delaying purchasing a LTCI policy can ultimately prevent coverage, or render coverage to be cost prohibitive, explains Harry Crosby, author of "Long Term Care Insurance…The Complete Guide" and national director of business development of ACSIA LTC. "The mistake many prospects make is when they compare today's premiums for a 50-year-old to today's premiums for a 65-year-old. Then they decide to wait until they're 65 and save the money they would have spent on the premium."
Crosby explains the concept by using the example of someone age 50 today versus that same 50-year-old waiting until he or she is 65. He uses a 5 percent compound inflation benefit in his calculations.
During the 15 years from age 50 to age 65, the policy with a 5 percent inflation protection rider doubles in benefits. So in order to match the same policy that could have been purchased 15 years earlier, one would have to calculate the premium based on a $10,000 monthly benefit at age 65.
Then, let's assume that both live to age 90 and die suddenly without using the policy. The 50-year-old would have paid premiums for 35 years, and the 65-year-old would have paid premiums for only 20 years. The 50-year-old purchaser would have paid a total of $121,596.30 during his lifetime, but the 65-year-old purchaser who waited would have paid a total of $202,018.80—an additional $80,422.50 and received 15 years less coverage.
The factors that could change and affect one's ability to purchase in 15 years are:
- Premiums rates on new policies are usually higher than the premiums on the policy that was replaced.
- Underwriting standards will probably get more restrictive. Even if one qualifies now for coverage, he or she may not qualify later because of the changes in underwriting.
- Cost of care continues to rise every year.
- Rates are based on age and significantly increase as one gets older.
- Your health might change, rendering you ineligible for the coverage or ineligible for discounts.
- Spouses may become ineligible because of poor health. This would increase the premiums at the time of purchase because of ineligibility for a spouse discount.
Purchasing LTCI at age 50 lowers the costs and increases the benefits.
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