Imagine you own a crystal ball. That crystal ball tells you there is a 0% chance you’ll die in the next 10 years. You’re not going to buy a 10-year term life insurance policy. Most people in their 30s, 40s and 50s would assess their odds of ending up in a nursing home in the next 10 years at the same odds. While that would not be totally accurate, it is unlikely. That’s just the rub with insurance. No one wants to pay a premium for something they won’t use.
At the same time, no one wants to be in the situation where they need to use it. When it comes to long-term care insurance, that often leads to folks waiting too long. But what is the optimal age to buy so that you’re not paying for too long but also not paying too much?
This is a complicated question, as it depends on so many personal factors. However, here are some rules of thumb for when to buy long-term care insurance: According to AARP, the best age range is between 60 and 65, with a significant assumption that you will still qualify for care. According to the American Association for Long-Term Care Insurance, 30.4% of people between the ages of 60 and 64 will be declined for the insurance. Partly for this reason, they recommend applying for coverage in your mid-50s.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
There are many personal factors to consider when figuring out the best age for you. Below we cover some, but not all, of them.
1. Health
When I was affiliated with ING early in my career, I was trained to say, “You’re insuring your insurability.” I don’t disagree with this sentiment. If you have a family history of something that may preclude you from getting coverage later in life, that may be a reason to start earlier.
2. Gender
For about a decade, women have had to pay more for insurance because they tend to live longer and therefore need long-term care for a lengthier period than men. For this reason, paying policy premiums over a longer period is more impactful. Therefore, assuming coverage can be obtained, starting as late as 65 for women tends to be more affordable.
3. Income
Because of high claim rates, LTC insurance is expensive. Traditional policies also don’t guarantee, and probably won’t have, level premiums. This is one of the reasons many opt for the hybrid life insurance or annuity options.
It is much less painful to pay a premium while you’re working than it is to pull it from your savings in retirement. While this one is less quantitative, it can help to align your premium with your retirement date. So if you are 55 and plan to retire at 65, buy a policy that is paid up in 10 years.
All insurance is a risk-management tool. If you have a lower risk tolerance, you are more likely to get the coverage and to get it early. Your financial plan can point out how much of a risk this is. For example, someone with a large balance sheet may be able to self-insure. If you want to build your plan or reaffirm your numbers, you can use a free version of our software.
In my experience, the biggest factor influencing when and if you get LTC insurance is really quite simple: Do (or did) your parents need it?
Related Content
- Nursing Home Care: What to Do When Medicare Won't Pay
- A Roth Conversion Alternative That Addresses Long-Term Care
- New Payroll Tax Targets Long-Term Care Expenses
- Four Tax-Friendly Ways to Pay for Long-Term Care Insurance
- Six Key Factors to Consider When Shopping for Long-Term Care Insurance
-
Cord Cutting Could Help You Save Over $10,000 in 10 YearsHow cutting the cord can save you money and how those savings can grow over time.
-
The '8-Year Rule of Social Security' — A Retirement RuleThe '8-Year Rule of Social Security' holds that it's best to be like Ike — Eisenhower, that is. The five-star General knew a thing or two about good timing.
-
You Were Planning to Retire This Year: Should You Go Ahead?If the economic climate is making you doubt whether you should retire this year, these three questions will help you make up your mind.
-
Are You Owed Money Thanks to the SSFA? You Might Need to Do Something to Get ItThe Social Security Fairness Act removed restrictions on benefits for people with government pensions. If you're one of them, don't leave money on the table. Here's how you can be proactive in claiming what you're due.
-
From Wills to Wishes: An Expert Guide to Your Estate Planning PlaybookConsider supplementing your traditional legal documents with this essential road map to guide your loved ones through the emotional and logistical details that will follow your loss.
-
Your Home + Your IRA = Your Long-Term Care SolutionIf you're worried that long-term care costs will drain your retirement savings, consider a personalized retirement plan that could solve your problem.
-
I'm a Financial Planner: Retirees Should Never Do These Four Things in a RecessionRecessions are scary business, especially for retirees. They can scare even the most prepared folks into making bad moves — like these.
-
A Retirement Planner's Advice for Taking the Guesswork Out of Income PlanningOnce you've saved for retirement, you'll need your nest egg to support you for as many as 30 years. For that, you need a clear income strategy, not guesswork.
-
Why Smart Retirees Are Ditching Traditional Financial PlansFinancial plans based purely on growth, like the 60/40 portfolio, are built for a different era. Today’s retirees need plans based on real-life risks and goals and that feature these four elements.
-
To My Small Business: Well, I've Been Afraid of Changin', 'Cause I've Built My Life Around YouWhile thinking about succession planning might feel like anticipating a landslide (here's to you, Fleetwood Mac), there are strategies you can implement to manage the uncertainty and the transition.
