Most financial advisors recommend buying long-term care insurance in your fifties or early sixties. The younger you are when you buy a policy, the lower the annual premiums, but the longer you’ll have to pay those premiums. By the time you reach your mid-sixties, you are more likely to have a medical condition that makes you ineligible for a preferred-health discount or makes it tough to get coverage at all.
You are also more likely to have the cast to pay premiums in your fifties or early sixties and because you are starting to form a better picture of your retirement budget, it’s a good time to factor the annual premiums into your long-term plan.
How much long-term care insurance coverage should you get?
Start your calculations by looking at the cost of care in your area. Then figure out how much you could cover with your retirement income and savings. The calculation may be very different for single people than for married couples. After you know the cost of long-term care and how much you can afford on your own, consider buying enough long-term care insurance coverage to fill the gap. The average length of care is about three years, but you may want a longer benefit period if you have a history of Alzheimer’s in your family.
A good strategy for couples is to buy a shared-benefit policy that provides a pool of benefits either spouse can use. However, shared-benefit policies tend to cost 12% to 20% more than two separate policies.
Calibrating the Cost
The longer the waiting period before benefits kick in, the lower your premiums. But initially you will need to pay the costs out of your own pocket. It you choose this option, make sure you understand how the waiting period is calculated. Most financial advisors recommend no more than a 90-day waiting period. Inflation protection is essential. Nursing-home and assisted-living costs have increased by about 4% per year over the past five years and home-care costs have risen by 1.3%, although that may rise faster as baby boomers compete for caregivers. Most newer policies adjust the policy at 3% per year however some insurers even offer 2% or less per year.
Insurers have different needs based on your age and health and their own claims experience. Many long-term care agents work primarily with Genworth, Mutual of Omaha, MassMutual, Transamerica and John Hancock.