Does the cost of long-term care insurance depend on your health?

Question

I'm 50, living in California, planning to retire early at 60, and am trying to do projections of to make sure my wife and I have enough money so that I can do this. I think I have most of the necessary data, except when it comes to long-term care insurance (LTCI). We will have too many assets to make Medicaid or state-paid care an option.

Answers to this question suggest that 60 is about the right age at which to start paying for insurance. Intuitively, this seems crazy to me, since my main health issue right now is whether I can improve my half-marathon time. This article describes LTCI as extremely expensive, and says that people who pay for coverage often receive no benefits.

Does the cost of LTCI depend, as with life insurance, on your age and health? Do they give you a physical exam and take your medical and family history? Are data available anywhere showing what people are actually paying for some standard amount of coverage as a function of age and health?

Conversely, my wife, who is the same age as I am, has a health problem that seems serious but has eluded diagnosis. Could it make sense for us to start paying for LTCI for her already? Would her preexisting (non-)diagnosis affect the cost of coverage, or possibly make it prohibitive?

Answer 1

Short answer: Yes.

Longer answer: There may or may not be a medical exam, or a physical, as with a life insurance policy. But your medical history is considered in the underwriting process.

Disclosure: I once worked as a financial advisor, and held an insurance license for life, annuity and long-term care. It has been 8 years since I left that line of work.

There are some "knock-out" questions that the salesperson is encouraged/required to ask just to see if there would be anything obvious that would disqualify you. The only one I can remember from that list is COPD. If you have that as a diagnosis in your personal medical history, the instruction to the salesperson is to not waste anybody's time. There were several other conditions, all with very long technical names.

If you're not disqualified by the no-brainer knock-out questions, your medical history will likely be included in the underwriting process.

Not every serious illness is an automatic disqualifier, including cancer. It may cause your premiums to be a little higher, as the underwriters will take a closer look and increase your risk profile due to the history.

There may be some group policies where underwriting is limited or not required at all. As with all group insurance policies, the healthy members in the group are paying more in premiums than they otherwise would, in order to "subsidize" the premiums of the less healthy members. It's almost always cheaper to get your own personal policy unless you know you wouldn't qualify for it. Then, the group policy might be your only chance for some coverage.

Age 60-62 is statistically the best time to purchase LTCI. On average, if you make it to 62, you have a very high chance of making it to 90. (These were the numbers available to me 8 years ago when I was in the business.) After 62, the prices go up a lot faster with each year of age.

I can't answer with anything helpful about your spouse's specific situation. It would be good to talk to a licensed insurance broker about it (not a salesman from a specific company). The broker is not necessarily bound to disclose personal details you might have shared with them. The company salesman would be obligated to disclose it to their company.

Answer 2

Your wife is probably not going to be able to get a policy until all tests are complete and the doctors give her a clean bill of health.

A change in your health could make your premiums 50% to 75% higher than they would be if you applied for a policy in perfect health. Health history is one of the biggest factor in calculating an LTCi premium.

The average age for purchasing a policy is 59. Including all rate increases, the average long-term care insurance premium is $1,591 per year, based on my calculations from a 2015 National Association of Insurance Commissioners report with 2014 data.

Because of new consumer protections designed to prevent rate increases, policies purchased today do cost more than older policies. In 2015, the average premium for a new policy was $2,532 per year, according to a LIMRA survey of most companies selling long-term care insurance. (Couples can get discounts as high as 30 percent when purchasing policies at the same time.)

Do NOT work with just a local insurance agent who sells many different types of insurance. ONLY work with an insurance agent who specializes in LTC insurance and that represents at least 7 of the top companies. There are probably a couple of hundred agents in the country that specialize in LTC, are independent agents representing a lot of companies AND have a lot of experience. Interview at least 3 different agents. Get quotes from every agent you speak with and ask each of them their opinion about which policy you should get. Go with the agent who seems the most knowledgeable and professional. Do NOT buy LTC insurance from a "financial advisor". They are usually limited to offering only a few companies (because of their broker/dealer arrangements) and they rarely understand LTC underwriting. Do NOT buy LTC insurance from the company you get auto insurance or home insurance with. And do NOT buy a policy just because your retirement association or alumni association recommends it. SHOP around. In your wife's case it would probably be wise to apply to more than one company at the same time in case one of them denies her application.

Here is an article I wrote for NextAvenue.org (a website owned by PBS) which answers some of the most common misconceptions about LTC insurance: An Insurance Agent’s Case for Buying Long-Term Care Insurance.

Answer 3

Here's the issue with LTC and, really, underwritten insurance in general; no one has a crystal ball.

Based on today's available rates where's the sweet spot to buy LTC? Probably right around the mid-60s, because you probably won't pay much in before you start gutting the carrier (assuming you can make it through underwriting in your mid-60s).

The issue is, what happens when some life event changes your underwriting status? Would you rather buy prematurely or be excluded entirely? Those are generally your two options when it comes to individual LTC. The underwriting eligibility window on LTC is very narrow. There's a very very small space between the best possible underwriting and being flatly declined.

Look for an LTC agent in your area. Likely someone in your circle of friends and family will know a reputable/knowledgeable insurance agent who can run up some quotes at various underwriting classes. Try to avoid looking at quotes for your age + 10 years to see what the quote will look like 10 years from now. 10 years from now the rate tables will be significantly different.

Whether or not you should buy LTC now rather than waiting will depend on a whole host of other criteria. Personally, if I was 50 and my biggest health concern was improving my run time and LTC is on my mind, I'd just pick up a policy now while I will likely be in a preferred underwriting class rather than waiting and hoping my health doesn't betray me.

Obviously I'm a stranger on the internet and none of this is actual advice. You should find an agent local to you and talk about your options and situation.