Making Decisions on Long-Term Care Insurance

Deciding whether to buy long-term care insurance is a complicated process. Factors such as your age, health status and whether you can afford the premiums now and in the future are important factors in the decision.

What is the optimal age to buy a policy?

The optimal time for a person to buy the insurance is in his or her late 50s. A typical policy will cost a 55-year old couple around $4,800 a year. At age 60 the cost for a couple increases to $6,400. So the longer you wait, the higher the premium.

Most policies' minimum eligible ages are in the 50- to 60-year-old range. Some of the most recent policies have a much lower age limit – as low as 18.

What are the health requirements?

You have to be in relatively good health physically and mentally to qualify. A physical exam is not typically required. According to the American Association for Long-Term Care Insurance, the risk of being turned down rises with age. A person in the 50 age range has a 1-in-7 chance, while in your 60s the chances of being turned down are 1-in-4.

How do I know if I can afford the insurance?

Long-term care premiums are based on an individual's age when the policy is purchased. The younger the person is at the time of purchase, the lower the premium.

Many financial advisors recommend considering long-term care insurance if you have assets of at least $250,000, not including your home. The National Association of Insurance Commissioners recommends you spend no more than 7 percent of your income, including the income you will have in retirement.

How do I compare long-term care insurance policies?

Long-term care insurance is still considered a relatively new type of insurance product. Since policy types vary, you'll want to pay close attention when comparing policies.

Some of the most common provisions:

• Eligibility – Eligibility refers to the ages at which coverage may be obtained. The upper age limits at which policies can be purchased range from 69 to 89. Age limitations apply only to your age at the time of purchase, not at the time you use the benefits.
• Premiums – Other factors such as setting the elimination time periods and the current health considerations of the applicant can also affect the price of the premiums. The insurer has the right to increase premiums in accordance with the policy's provisions, but only if they are increased for an entire group of policyholders.
• Benefit Amount – The applicant usually has the choice of the maximum daily benefit amount for home health care or nursing home care. A private room in a nursing home costs around $75,000 a year on the average; a semi-private room is $60,000.
• Elimination Period – Most long-term care policies have a period of time, 30 days or more, when no benefits are payable if the person needs care. Usually, the longer the elimination period, the lower the policy's premium.
• Waiver of Premium – Almost all policies include a provision for waiver-of-premium. This begins after the insured has been confined to a nursing home for a period of time – usually around 90 days, but can be as long as 180 days. Premium payments usually resume when the care ends. Some policies have no waiver-of-premium provision so the insured needs to continue the premium payments as long as long as they are receiving care.
• Renewability – Most all of today’s long-term care policies are guaranteed renewable and can't be cancelled by the insurer except for nonpayment of premiums.

What steps should I take before I buy?

• Contact your state’s insurance department for a list of companies that are approved to sell long-term care policies. Check to see who has received high satisfaction ratings; check comments and message boards to see any unresolved problems.
• Research the companies selling the policies to make sure they are financially secure and have long histories in selling long-term care plans.
• Compare at least two companies’ premium costs; check to see how much and how often premiums have increased.
• When you find a plan you like, review it carefully with your insurance advisor and get answers to any questions you have.