Understanding Insurance Underwriting

How much does long-term care insurance cost?

Shutterstock_60862267Research has shown that many of us both underestimate the risk and cost of long-term care and overestimate the cost of protecting ourselves with long-term care insurance.

With research showing that approximately 7 out of 10 American’s aged 65 or over will need some form of long-term care services during the remaining years of their lives, many people have turned to products like long-term care insurance to protect themselves against this potential catastrophic cost.

Many survey responders who chose not to buy long-term care insurance (and have therefore chosen to self-insure a risk that could be well over $300,000 per year per person) cited the cost of insurance premiums as a primary reason not to buy.  Granted, long-term care insurance isn’t affordable for everyone but it is generally less expensive than most people believe and there are ways to minimize premiums.

First, it’s important to understand that long-term care insurance premiums for newly purchased policies increase with age.  To state it another way, the older you are when you buy the more this insurance will cost.  It’s also worth noting that this product is medically underwritten and the older you are the more likely you will be to have a medical condition that will prevent you from buying insurance or that will cause you to pay higher premiums. 

Secondly, there are basically four (4) major components to designing a long-term care insurance policy that drive the cost.  Each of these can be changed to impact the cost of your policy.  They are:

  1. Your daily or monthly maximum benefit.  This is the amount that the insurance carrier will reimburse you for care received each day or with more flexible plans, during a given month.  Selecting a lower daily or monthly benefit, will lower your premiums however you may also be “choosing” to co-insure part of the future risk.
  2. Lifetime maximum – stated in a number of years.  This option is usually stated as 2, 3, 4, 5, 6, etc. years.  It’s very important to understand that the lifetime benefit you select does NOT limit you to that number of years.  This option is only used to establish your pool of money (benefits).  Someone who selects a $6,000/month benefit and a 5 year lifetime maximum benefit will start with a $360,000 pool of money ($6,000 x 12 x 5).  Benefits paid to the policyholder are deducted from that pool without regard to the number of years.  So this plan could last a lot longer if the claimant is using less than $6,000 per month.
  3. Elimination Period.  The Elimination Period (EP) is like a deductible but stated in terms of days instead of dollars. The EP, usually expressed as 0, 30, 60, 90, 120, 180 or 360 days is the period of time once you are certified to be on claim that you will have to wait until the insurance company will begin paying your claim.  Obviously the longer the EP the lower your premiums will be.
  4. Inflation protection.  Many people are buying long-term care insurance in their 50’s and are most likely to use their policy in their 80’s.  Companies offer various inflation options for that will inflate both your daily/monthly benefit as well as your lifetime maximum (pool of money).  Some of these options can be very expensive however many insurance companies offer more affordable options that may suit your needs.  Your LTC insurance specialist can also show you how purchasing a larger benefit up front with a lower inflation option may actually save you money.

Finally, you may be eligible for discounts on your policy based on your membership in an association (e.g., alumni associations and professional groups).  

You and your long-term care specialist agent can manipulate all of these features to design a policy the meets your needs and fits your budget.  There are also many other options available in these policies to tailor the policy to your particular desires.

Remember… you will never be younger (so rates won’t be less expensive) or healthier (rates go up with medical conditions or you may not be able to qualify) and you can take control of your policy design and premiums.



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