20 Feb The ‘sweet spot’ for LTC insurance?

Q. I’m 48, in good health, but already worried about what old age is going to look like. When is the “sweet spot” to buy long-term care insurance? I know someone in their mid-50s who’s paying a lot but has a deal where he’s going to fully fund it over five or six years and then be done with premiums. How does that work?
— Planning ahead

A. You’re smart to be thinking ahead about the risks that come with old age and taking measures now to manage those risks.

One way of doing that is to purchase long-term care insurance.

This kind of insurance may pay for a variety of services if you’re chronically ill and need help with activities of daily living such as dressing, bathing, or eating, or if you’re cognitively impaired, such as with Alzheimer’s, said Gene McGovern of McGovern Financial Advisors in Westfield.

He said long-term care services range from care at home to assisted living, adult day care, nursing home care and hospice care.

In a 2016 study, the Department of Health and Human Services (HHS), estimated that slightly more than half of all Americans who turn 65 today will eventually need long-term care services of some type, with women more at risk than men, in part because of their greater longevity.

McGovern said while the majority of long-term care takes place at home and is often provided by family members, those entering a nursing home can face steep costs. In New Jersey, according to surveys by the insurer Genworth, the median cost of a nursing home stay in 2017 with a semi-private room was $120,450 per year, which is $330 per day.

The HHS study estimated that the length of time for which women need long-term care because of a disability averaged nearly four-and-a-half years, while for men the average was a little over three years. That could cost anywhere from $350,000 to over $500,000, he said.

McGovern said most long-term care insurance is sold with fixed annual premiums based on your age, health, and other underwriting factors.

“Once issued, the policies can’t be canceled — so long as you pay the premiums — nor can insurers raise your individual premium,” McGovern said. “However, premiums can be increased for a class of policy holders, and premiums for existing policy holders have been increasing sharply in recent years.”

That’s because insurers often miscalculated the risks they were taking on when issuing long-term care policies and the resulting costs they would face from claims, he said. Plus, lower interest rates have compounded the problem by reducing insurers’ earnings on their investments.

As a result, many insurers have left the long-term care market, while those that remain charge higher premiums, especially for women, McGovern said.

So where is that “sweet spot” for when to buy?

Opinions vary, so a lot depends on your health and individual circumstances.

McGovern said the basic trade-off is usually between minimizing the number of years you’ll pay premiums versus the rising cost of those premiums as you get older and the risk of becoming uninsurable.

“One rule of thumb is buy the insurance somewhere between your early 50s and early 60s, which can help strike a balance among premium payments, costs and insurability,” he said. “On the other hand, if your health prospects are poor, you may want to buy the insurance as soon as possible.”

McGovern said another approach combines long-term care insurance with some form of permanent life insurance.

“These hybrid policies are sometimes sold with either a single premium or a limited number of premium payments, such as to age 65,” he said. “Because there are fewer premium payments, and a guaranteed benefit, the individual payments are higher than for a standard long-term care policy.”

Under the combined policy, if long-term care is needed, the death benefit can be accelerated to pay for it, McGovern said. If long-term care is not needed, your beneficiaries receive the death benefit.

Note that use of the policy for long-term care benefits will reduce or eliminate the death benefit.

In the end, he said, given the financial and health risks, some form of long-term care insurance is generally worthwhile, provided you can afford the premiums.

“Medicare provides extremely limited benefits for long-term care, for only up to 100 days, with co-pays and highly specific requirements,” he said. “And while Medicaid pays for a significant portion of nursing home care, you generally must exhaust most of your countable assets before Medicaid will pick up the tab.”

Email your questions to .

This post was first published in February 2018.