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Long Term Care Insurance

At what age should one start considering the purchase of a Long Term Care Insurance policy?

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2015-07-14 16:05:16
2015-07-14 16:05:16

The most basic answer is the same as with any sort of insurance policy. It depends on how "risk averse" you are, as economists would say. Some gamblers never buy insurance for anything. Some conservative people insure everything.

Long term care insurance is most popular among older people, especially the aging Baby Boomer generation. Elderly are the most likely to need it. However, the U.S. government estimates that 40% of the 13 million people receiving long term care are between 18 and 64. Part of the reason that number is so high is that it includes handicaps of all types. But an accident can happen to anyone.

Also, note that the sooner you get long term care insurance, the less it will cost. The premiums generally don't increase as you age.

From a financial planning perspective I encourage people to begin looking at LTC options no later than 40. The reason is two fold. First, the longer you wait, the more expensive the premium. Second, by starting early, I like to have my clients stop paying once they retire. If they start early, the premium is still affordable on a Ten Pay (pay for ten years and then have coverage for life) or Pay To 65 (pay from your start age until your 65th birthday and then have coverage for life). If you wait until you are 60 the costs are generally to high for a short pay plan so you end up paying high premiums well into your retirement which is an expense you don't need when your 80 years old.

I am certainly not an expert, but the financial counselor and talk show host Dave Ramsey recomments not getting coverage until age 60, at which point the statistics take a dramatic turn to the need for that insurance. Yes, you can get the policy cheaper at an earlier age, but the odds of needing it earlier are much lower. You can make up the difference in cost by taking the amount you would be making for insurance payments and invest it in at good growth stock mutual fund. Historically, the growth of those mutual funds, say from age 50 to 60, would be significantly higher than the amount you would have been putting out in premiums during that time. With the market like it is now this may not be true, but according to Dave, 100% of mutual funds have increased over any ten year period in history.

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