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January 29, 2004 at 07:00 PM
Best Age To Buy LTC Insurance? Your Clients Current Age
Contrary to advice sometimes seen in the consumer media, the best age to buy or upgrade long term care insurance is ones current age.
Knowledgeable LTC insurance advisors recognize that advice to the contrary often is substantially inaccurate.
For example, advice to delay purchase of the coverage to, say, age 65, or to self-insure if one is age 70, is particularly egregious.
Such strategies, if they can be called that, assume that delaying purchase will save money. Or, they may be offered with the idea that premium dollars invested in a side account will earn enough to pay substantial future care costs.
As we will see, by using realistic planning assumptions, both notions can be proven false. There are inflation and investment realities that simply must be factored into the equation.
For example, a typical error in calculating cost of waiting is failing to recognize that a higher future benefit will be needed–due to inflation. At 5% inflation, a $200 daily care cost today will increase to about $400 a day over the next 15 years.
To purchase a LTC insurance policy in 15 years with comparable benefits, a $400 daily benefit will be needed, or twice the insurance, at the more expensive age based premiums.
Recently one of my national accounts wanted assistance with a bank client who asked questions related to the above discussion. The bank asked for answers to the following questions: Should we encourage age 45 employees to purchase LTC insurance? Are these employees better off waiting to buy LTC insurance? Are they better off adding to their investment portfolios and then self-funding future care costs?
My answer: Using a 6% after-tax rate of return, a purchase at age 45 illustration generated lower lifetime costs. It also showed that investing premium at any age will not accumulate adequate funds to finance an extensive care event.
