When Should I Buy Long Term Care Insurance?

Chances are if you are asking that question, someone close to you has become a caregiver.   Until we see for ourselves what is involved in being a caregiver, it is hard to overcome our optimism bias.  "I'm healthy, that will never happen to me."

Don't mistake buying Long Term Care Insurance as a purely financial transaction.  Perhaps your financial advisor brought it up during a review.  You want to protect your nest egg and are willing to pay an insurance premium to make certain you don't spend all of your money on care.   But Long Term Care Insurance is also about protecting those you love from the day-to-day impact of becoming caregivers.

If one day you need care, your life isn't over.  But the lifestyle of someone you love is going to change dramatically.   Our caregivers bear the consequences when we don't plan ahead.   The toll that caregiving takes will affect their health, their other relationships, their hobbies, and downtime, and often because of changes in their work availability, it will also affect their finances.  Care-giving is rarely shared equally among siblings and it is common for the one bearing the greater share to resent those who didn't or couldn't help as much.   If preserving family harmony has been a priority, Long Term Care Insurance is worth considering.

Ideally, the time to buy is when three things come into focus:

1. You realize you could be living a long life and may need help to get through your daily routine
2. Your other financial priorities are in order and you have some left to spend to protect against the risk of paying for care
3. You are still healthy! (This is the toughest insurance to qualify for!)

These three things converge somewhere between the ages of  50 and 65, usually, after your kids are done with college or right about the time your own parents might begin to need help.  It can be tempting to wait a few more years before buying a policy, you may even think that doing so will save you a lot of money.  It won't.  Someone who buys a policy at age 60 (instead of age 50) will only save about $1,000 over the course of their lives.  They will have lost ten years of compound interest growth on their Long Term Care Insurance benefit (as it grows to keep up with inflation).  They will have sacrificed ten years of coverage, what if something happened at age 55?  And will they still be healthy enough to buy at age 60?  Long Term Care Insurance is the most difficult product to qualify for medically.  The savings don't stack up well against all that you sacrifice by waiting.

Wondering where to start?   Have a conversion with those closest to you.  Ask who will be willing to help you to do specific things like managing your finances, driving you to appointments, helping with medical decisions, groceries, meals, and housekeeping.  Do you intend to stay in your own home if you need care?  Who will be able to come over and help you get dressed or bathe?  If you plan to pay someone for any of these sorts of services, review your plan on how you will pay for those costs.  Which assets will be used first?  And when that money is gone, what account or asset will you use next, keep going down the list until you have it all prioritized. This conversation is about discovering what resources and help you have already available and finding the gaps so you can plan ahead and avoid a crisis.

Next, make sure you have the necessary legal documents in place so those who want to help can legally do so.  Then reach out to an insurance agent to explore how Long Term Care Insurance might fit your situation.  If the agent only represents one company, make sure to get a second opinion from someone who represents multiple companies. This is after all a big purchase! Today's policies can be pure insurance, or they can be bundled with Life Insurance.  The bundled plans, sometimes called 'hybrids' or 'asset based' are attractive when you believe you will never use your plan and want some sort of value left behind for your heirs.

It's a good idea to try not to spend more than 5% of your income paying for a Long Term Care Insurance policy.  Much more than that and you will feel the pinch in your lifestyle.  Once you've got a few quotes it's a good idea to involve your financial advisor in your final decision.  Lastly, make sure your family knows you have purchased a plan so if the need ever arises they know how to help you access your benefits as soon as possible.