Everybody ages. And as they age, it becomes more and more likely that they will require some form of long-term care, whether in their home, a nursing home, or an assisted living facility. For adults at age 65, there is a nearly 70% chance of needing long-term care services within their lifetime. However, purchasing long-term care at that age comes with risks, including the possibility of being ineligible
With the cost of long-term care rising, it’s more important than ever that you begin planning for the future well before it arrives. That means researching and purchasing long-term care insurance (“LTCI” or “LTC insurance”) before you need it. As a CPA, you may be well-acquainted with financial planning for others. Now it’s time to prioritize long-term care planning for yourself. But when should you consider purchasing LTC insurance?
What Is Long-Term Care Insurance?
Before we dive into when to buy long-term care insurance, let’s get a better understanding of what it is. Long-term care insurance is a type of insurance that offers coverage for some of the costs of custodial care for individuals who can no longer perform activities of daily living (ADLs) without assistance. ADLs include:
- Toileting
- Bathing
- Dressing
- Eating
- Transferring
- Continence
LTC insurance is not a replacement for standard health insurance or Medicare coverage. Rather, a long-term care insurance policy is designed to help supplement other policies and cover services they do not. This helps protect a policyholder’s personal assets and save on out-of-pocket costs for long-term care services.
Because LTC insurance is intended for custodial care provided by licensed professionals, it typically cannot be used to pay family caregivers or loved ones. However, once you’re eligible for long-term care assistance, it can cover services provided in:
- Nursing homes
- Assisted living facilities
- Skilled nursing facilities
- Adult daycares
- Memory care facilities
- Home care
Like other insurance, applicants must meet certain eligibility requirements to qualify for LTC insurance. They may also look into alternatives like hybrid policies that include adding an LTC rider onto existing life insurance coverage, short-term policies, or annuities.
Why CPAs Should Care About Long-Term Care Insurance
As a CPA, you work to protect the personal assets and future financial health of your clients. If you provide financial planning services, you may advise them to plan carefully and make wise decisions, especially when it comes to preparing for their retirement and building their legacy.
It’s time to take your own advice. Here are some considerations when deciding whether LTC insurance is right for you:
- Life expectancy: Americans are living longer than ever, and depending on when you retire, that could leave three or more decades in which you may require some form of long-term care.
- Demographics: Women are more likely to need long-term care because they typically live longer. Single people may pay higher premiums for LTC insurance, while married couples may qualify for discounts.
- Escalating costs: The price of long-term care is on the rise, now exceeding an average above $110,000 annually for nursing home care.
- Asset protection: Having LTC insurance can help you avoid self-pay care, which could quickly deplete your savings and wipe out your legacy.
- Tax benefits: You may be able to deduct your LTC insurance premiums as medical expenses on your taxes, based on IRS long-term care premium limits.
- Future-proof: Once you have an LTCI insurance policy, you can also start planning where you’d prefer your care to be delivered, whether that’s in a residential facility or in your own home.
The "Sweet Spot" for Buying LTC Insurance: Age and Timing Considerations
There is no “right” age to purchase LTC insurance. There is, however, a window that is ideal for meeting eligibility requirements and receiving the lowest premiums.
The Ideal Age Range (Mid-50s to Early 60s)
The age range of 55-65 is generally considered to be ideal for purchasing LTC insurance. During this time, you are nearing retirement and planning for the next stage of life but have not yet reached the age in which many long-term, chronic illnesses develop or are diagnosed. As you age, your risk of developing these health issues increases. That means your long-term care needs are greater, which could result in an insurance provider denying your application or raising premiums.
Why Waiting Too Long Is Risky
Each insurance carrier has its own qualifications for purchasing LTC insurance. Some may cut off eligibility at age 65, while others will issue a policy but levy higher premiums. An insurance carrier will also take the an applicant’s health into consideration, including pre-existing health or recent surgeries or hospital stays.
To help meet eligibility requirements around age and pre-existing conditions, and to receive lower premiums, it’s better to purchase LTC insurance when you’re younger than 65 and in good health.
Can You Buy Too Early?
If you’re the type who really likes to plan ahead, you may think it’s better to purchase long-term care insurance well before retirement age. But there are downsides to buying LTC insurance in your 30s or 40s:
- You may pay premiums for many years before needing long-term care, so it’s important to carefully compare the potential benefits with the long-term cost of coverage.
- If you have high debt or are still catching up on retirement savings, it may not be a good choice. It might be wise to put more money toward those items first.
- You’re less likely to need long-term care before the age of 50.
- The coverage you purchase at age 40 may not be enough when you need it at age 80. Your policy limits may not keep up with inflation over such a long span, so the benefits available when you need them may still not be enough to cover your costs.
Common Myths That Might Delay LTC Insurance Purchase
So, why would financially savvy CPAs put off buying long-term care insurance? As we’ll see, many of the common objections are based on misconceptions rather than facts:
Myth: Medicare will pay for it.
Truth: This is the most common misconception around long-term care. Medicare will cover short-term care in a skilled nursing facility or rehabilitation if needed, but it does not cover long-term custodial or in-home care.
Myth: My family will care for me.
Truth: Many loved ones are willing to care for older family members, but the burden of doing so can pose many problems. First, family caregivers are often unpaid and untrained, which can lead to reduced quality of care and increased strain on their time. Second, this can damage familial relationships and cause rifts between family members. Finally, your loved one could be compromising their own future if they’re forced to leave their job or use their own finances to care for you. It’s best to create a strategy for long-term care with your family before you need it.
Myth: I’m healthy and don’t need it.
Truth: It’s easy to say this, especially in your 40s and 50s, but this may not always be the case. As people live longer, their risk of needing LTC to help with activities of daily living continues to grow. It’s impossible to predict what your healthcare needs will look like 20, 30, or 40 years down the road.
Myth: LTC insurance is too pricey.
Truth: This is why it’s so important to buy during that “sweet spot” between ages 55 and 65. In doing so, you help reduce the risk of exceeding your LTC benefits by starting too young, but you also avoid the higher premiums and risk of being denied if you wait too long.
Myth: I won’t go into a nursing home, so I won’t use LTCI.
Truth: Many people want to avoid going to a nursing home for long-term care, but you can still do that with an LTC insurance policy. LTCI typically covers a range of services that can offer coverage for different care environments, giving you more flexibility and autonomy to choose.
Action Steps: Getting Started with LTC Insurance
Once you’re ready to start exploring your LTC insurance options, follow this helpful checklist:
- Set care goals. Understand what type of care you want, and in what setting you want it. This will help you decide on coverage limits.
- Understand your risk. Evaluate your risk factors, like hereditary health concerns or genetic predispositions, along with environmental and lifestyle factors. You may not have a chronic illness right now, but if you’re more likely to develop one, you may wish to act sooner.
- Set your budget. Estimate how much you can comfortably afford for LTC insurance premiums without impacting your retirement savings or overall financial health.
- Research policies. Evaluate different insurance companies and explore policy features like inflation protection, waiting periods, and more. Look for an insurance company and/or agent that specializes in or is experienced with LTC insurance.
- Apply at the ideal age. Plan to purchase your LTC insurance policy during that 55-65 window (earlier is likely better). However, if you’ve had a recent surgery or hospital stay, you may wish to wait a bit so that it doesn’t impact your eligibility.
- Prep for underwriting. The insurance company may need to review your health records and medical history, and they may request a phone call or meeting. In some cases, they may also ask for an in-home assessment with a nurse.
- Review your policy. Once your policy is in place, review it on a regular basis to help ensure it still fits your budget and your long-term plans.
Key Takeaways for CPAs Considering LTC Insurance
Don't wait until it's too late to secure your financial future and protect your legacy. The ideal time to purchase LTC insurance is between the ages of 55 and 65, when you're healthy enough to qualify for coverage and lower premiums. As a CPA, you understand the importance of strategic planning. Now apply that same wisdom to your own long-term care needs. Start researching policies today so you can make an informed decision during that critical window, helping to ensure you won't burden your family or deplete your assets when care becomes necessary.