Interesting article on today's Barrons(for WSJ subscribers only)http://www.newsday.com/news/nationworld/wire/sns-ap-whites-only-scholarship,0,5464197,print.story?coll=sns-ap-nationworld-headlinesIs long-term insurance for you? Clearly, it isn't the most exciting financial product. "Nobody likes to buy it because it doesn't build equity," explains Lawrence Levine of LTL Insurance Concepts, an insurance broker in Melville, N.Y. Indeed, if you can set aside enough money to cover three or four years of care -- perhaps putting about $250,000 in an interest-earning account -- you don't need the insurance.<snip>If you do decide to buy long-term care insurance, it almost always pays to get it sooner rather than later. For example, at today's prices, a 40-year-old married man might pay $1,419 a year for a policy covering three years of care, versus $5,138 for a 70-year-old married man. If each goes into a nursing home at 84, the younger man will have paid a total of $62,430, while the older one would have paid $71,932. Each will have paid less than the current cost of just one year in a nursing home in some states. (Premiums can be 20% to 40% higher for singles because they are apt to "go to claim" more often than married people with spouses and children who can help them.)</snip>intercst
For example, at today's prices, a 40-year-old married man might pay $1,419 a year for a policy covering three years of care, versus $5,138 for a 70-year-old married man. If each goes into a nursing home at 84, the younger man will have paid a total of $62,430, while the older one would have paid $71,932. This is exactly what I've been wondering about. We are 38, and people keep telling us that we are way too young to buy LTC. But the premiums would be so much lower if we buy it now versus buying it when we're 50 or 70. Right now, it would cost us $38 per month. At age 50 it would cost $75 per month, and at age 70 it would be $250. If we went into a nursing home at age 80, here's what we would have paid in premiums according to when LTC was bought:Age 38--$19,152Age 50--$27,000Age 70--$30,000So, is it prudent to buy LTC at a younger age?
This is similar to the whole life vs. term life insurance debate. There is no single answer that is right for everyone. The amounts paid in premiums isn't lower if you start paying at age 38 because the insurance company is your friend, it is lower because they get the benefit holding your money for longer.If you invested your $38/month instead of buying LTC insurance at age 38, by the time you are 50 or 70 you would have money set aside for paying the higher LTC premiums at 50 or 70.So, based on your risk tolerance and the long-term returns of equity and fixed income investments, come up with an expected rate of return for your "LTC savings" investments. Keep in mind that as you get closer to when you will withdraw money, you should shift more towards less risky investments so short term market swings won't be as painful.Using this expected rate of return, run the numbers. To determine if waiting until age 50 to start buying LTC insurance is better, answer this: At age 50, is $38/month plus the expected return of your "LTC savings" investments less than $75/month?To determine if waiting until age 70 to start buying LTC insurance is better, answer this: At age 75, is $38/month plus the expected return of your "LTC savings" investments less than $250/month?To determine if you should ever buy LTC insurance, answer this:Would the returns on a $38/month investment from now until age 80 enough to pay for a nursing home from age 80 on?If you asked: Is it prudent to plan ahead for LTC, I would say yes. But to answer: Is it prudent to buy LTC at a younger age..... That varies by individual. If you would answer no to any of the questions below, you should consider buying LTC coverage now.1. Do you have the self discipline to invest the money (and not raid it) you would otherwise pay in TLC insurance premiums?2. Based on your expected rate of return if you chose to invest the money, is investing the money today and paying higher premiums later cheaper?3. If the investment choice is cheaper, if enough cheaper for you to feel comfortable taking the risk that you need to go into a retirement home before age 80?-Joe
Right now, it would cost us $38 per month. At age 50 it would cost $75 per month, and at age 70 it would be $250. If we went into a nursing home at age 80, here's what we would have paid in premiums according to when LTC was bought:That is assuming the insurance company does not raise your premium. The agent may say YOUR premuim can not rise BUT the company can raise the rates for everyone in your class. Generally that means someone your age or age bracket living in your state.1. 38 is too young to buy.2. LTC is devilishly hard to compare. Coverages vary from policy to policy. 3. Always get a minimum of three quotes. Remember price should not be the overriding issue. What is covered should be!buzman
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