Recently I was reading through the Wall Street Journal’s “The Experts” blog on the topic of long-term care insurance. I wasn’t surprised to see that most of them favored buying a policy at a relatively young age. You can read some of their ideas here:  http://blogs.wsj.com/experts/tag/long-term-care-insurance/.

However, at JPH Advisory Group, we have seen many of our retired clients go down the road toward long-term care (“LTC”) over the years, and here are a few of the reasons we often discourage them from buying policies at a young age:

  1. Retirement Income — How can you know what your retirement income is going to look like, when you are still more than a decade or two away from it? You’re taking on a liability (the LTC insurance premiums) that will last for 30-40 years, potentially. How do you know if you will be able to afford it in retirement?
  2. Lower premiums? — Yes, you lock in a lower premium if you get it earlier. Does that mean that your total cost will be lower? Maybe yes, maybe no — it really depends on how long you have to pay that premium. Over the remainder of your lifetime you may end up paying more simply because you have to pay it longer. Also, bear in mind that just because the premiums are low now, doesn’t mean they can’t raise them later. If the insurance company can convince your state’s insurance commissioner that their costs are higher than reasonably predicted, they can raise rates for the entire pool of insureds.
  3. Health — Experts talk a lot about getting coverage while you are healthy. We think this fear is somewhat overblown, because health underwriting for LTC is different than, say, life insurance. The insurance companies are much less concerned with things like high blood pressure, being overweight, or risk for coronary disease. Perversely, they actually want you to die young, so that you won’t need to file a claim. People who can’t get LTC insurance are usually denied for some kind of long-lasting debilitating disease… like MS, Alzheimer’s, or Parkinson’s.
  4. Filing a Claim — Our experience has been that it’s a lot harder to actually get benefits than one might imagine. Most people want to receive benefits in their home, if at all possible, and insurance companies have obliged with “home healthcare” features on most policies today. That’s all well and good, but bear in mind that the insurance company often only pays certain licensed and pre-approved providers for in-home care. They probably will not pay a family member or a friend, even if that person is also medically trained. Also, to qualify for payment at all, the insured has to be unable to perform two of six “activities of daily living.” These are very basic activities, that do not include simple tasks like preparing a meal, or remembering to take your medicine. In other words, you typically have to be very bad off before the insurance kicks in.

We want to be clear… all this is not to say don’t buy LTC insurance. It does have a place in a careful risk management strategy; just take a long and hard look at it beforehand. In general, we prefer an approach that plans to self-insure for all but the most extreme situations, and then consider buying protection against those.

So the next time a LTC insurance salesman comes knocking at your door, talk to us first. It may be time to buy, but it could also be too early to worry about. Either way, you need to know all the facts before making a decision.