Our Advice on When to Buy Long-Term Care Insurance Before It’s Too Late
Long-term care insurance is one of the few types of coverage where waiting until you think you need it can mean waiting until you can no longer buy it.
If you’re thinking about buying long-term care insurance, the most important thing to understand is underwriting. Long-term care insurance is designed to protect against a future risk. Once that future risk becomes a known medical problem, an insurance company may no longer be willing to insure it.
That doesn’t mean every medical diagnosis automatically disqualifies you. Underwriting standards vary by insurance company. However, certain conditions can make obtaining new coverage extremely difficult or impossible.
That’s why our advice is to investigate long-term care insurance while you’re still healthy enough to have choices—not after the diagnosis arrives.
People frequently approach long-term care planning backward. They wait until their health begins deteriorating and then start shopping for insurance. At that point, the insurance company isn’t simply asking, “Can this person afford the premium?” It’s also asking, “How likely are we to pay a substantial long-term care claim?”
Common underwriting problems can include:
- Alzheimer’s disease, dementia, or cognitive impairment
- Parkinson’s disease and other progressive neurological disorders
- ALS or other serious neurological conditions
- Already needing assistance with activities of daily living
- Already receiving home health care, assisted living, or other long-term care services
- Recent strokes or a history of multiple strokes
- Advanced or metastatic cancer
- Serious chronic illnesses or combinations of health conditions that substantially increase the likelihood of needing care
- Significant pulmonary conditions such as emphysema or pulmonary fibrosis
- Certain serious cardiovascular conditions
The exact decision depends on the insurance company, your age, diagnosis, medications, severity, medical history, and sometimes how long the condition has been stable. One insurance company may decline someone another company is willing to consider. So there isn’t one universal line in the sand for every disease. However, with major cognitive disorders and progressive neurological conditions, the opportunity to buy meaningful new long-term care coverage can disappear very quickly.
Family History Is Your Warning Sign, Not Your Disqualification
Having a parent or grandparent who developed Alzheimer’s, dementia, Parkinson’s disease, or another chronic illness doesn’t automatically mean you’re going to develop it. It also doesn’t automatically mean you’re uninsurable. But it should get your attention.
If Alzheimer’s or dementia runs throughout your family, waiting until you’re experiencing memory problems to investigate insurance is a terrible strategy. The better time to investigate coverage is years earlier, while you’re healthy and can compare multiple insurance companies and policy designs. The same principle applies if cardiovascular disease, strokes, serious pulmonary problems, or other disabling chronic illnesses are common in your family.
You’re not buying insurance because you’re certain something will happen. You’re buying it because you don’t know whether it will happen, and you don’t want your retirement plan destroyed if it does.
Traditional Long-Term Care Insurance
Traditional long-term care insurance is the most straightforward option. You pay premiums in exchange for a defined pool of benefits that can help pay qualifying long-term care expenses.
Depending on the policy, covered care can include:
- Home health care
- Assisted living
- Memory care
- Adult day care
- Nursing-home care
- Other qualifying long-term care services
Benefits generally become available after you satisfy the policy’s benefit triggers. Those triggers commonly involve severe cognitive impairment or being unable to perform a specified number of activities of daily living.
Who Could Benefit?
Traditional long-term care insurance can make sense for someone who wants to transfer a significant portion of future long-term care risk to an insurance company. It may be especially useful for people with meaningful retirement savings who do not have enough assets to comfortably self-fund several years of care.
Pros
- Designed specifically for long-term care expenses
- Can provide significant benefits relative to premiums paid
- Can help protect retirement assets
- Can help protect a healthy spouse financially
- May offer inflation protection
- May offer shared-care options for couples
- Can provide more choices regarding where care is received
Cons
- Premiums can be expensive
- Premium increases may occur on certain classes of policies
- You may never use the benefits
- Medical underwriting can make coverage unavailable
- Waiting until you’re older generally makes coverage more expensive
Another issue is that traditional coverage can feel like use-it-or-lose-it insurance. If you never have qualifying long-term care needs, there may be little or no benefit paid to your beneficiaries unless your policy includes specific additional features. This is one reason many consumers also compare hybrid policies and long-term care annuities.
Hybrid Life Insurance With Long-Term Care Benefits
For people who dislike the idea of paying premiums for traditional long-term care insurance and potentially never using the benefits, a hybrid life and long-term care policy may be worth considering. These policies combine permanent life insurance with long-term care benefits.
If you need qualifying long-term care, the policy can provide money to help pay for it. If you never need long-term care, a death benefit can generally remain for your beneficiaries. Depending on the policy design, using long-term care benefits may reduce the remaining death benefit. That’s what makes these policies different from a traditional use-it-or-lose-it long-term care policy.
Who Could Benefit?
A hybrid policy can make sense for someone who wants long-term care protection but also wants money to pass to beneficiaries if long-term care is never needed. It can also appeal to consumers who already need life insurance and want to address both risks with one strategy.
Pros
- Combines life insurance and long-term care benefits
- Can provide long-term care benefits if care is needed
- Can leave a death benefit if long-term care is not needed
- Can reduce concerns about paying premiums and receiving nothing in return
- May provide predictable premium structures depending on the policy
Cons
- Can require substantially more money upfront
- Benefits vary significantly between insurance companies
- Using long-term care benefits can reduce the death benefit
- Medical underwriting still applies
- The long-term care leverage may be different from standalone LTC insurance
Some policies require a large single premium. Others may allow you to fund the policy over five, seven, ten, or more years. You need to compare the actual contractual benefits carefully. Don’t buy a policy simply because an insurance agent says it has a “long-term care rider.” The monthly benefit, benefit period, inflation protection, elimination period, reimbursement method, indemnity benefits, and remaining death benefit can vary significantly.
Long-Term Care Annuities
Another alternative is a long-term care annuity that provides enhanced benefits when you qualify for long-term care. Instead of continuously paying premiums into traditional long-term care insurance, you generally reposition an existing lump sum into an annuity.
Depending on the contract, qualifying for long-term care benefits may increase the amount of money available for care beyond the annuity’s normal value or withdrawal amount.
The attraction is simple: You’re repositioning an asset instead of simply paying an insurance premium. If you never need long-term care, you generally still have an annuity with value that can potentially pass to beneficiaries.
Who Could Benefit?
A long-term care annuity may make sense for someone who already has substantial cash, CDs, investments, or other savings that could be repositioned. It can also appeal to someone who dislikes ongoing LTC premiums but still wants additional leverage for future care expenses.
Pros
- Uses an existing asset to help fund long-term care protection
- Can provide enhanced benefits for qualifying care
- May retain value if long-term care is never needed
- Can provide beneficiary value
- May reduce concerns about use-it-or-lose-it insurance
Cons
- Requires repositioning a lump sum
- Surrender charges may apply
- Liquidity may be limited
- Benefits differ between insurance companies
- Medical underwriting may still apply
- Not every health condition will qualify
A long-term care annuity isn’t automatically a solution for somebody who has already been declined for traditional LTC insurance. Eligibility still depends on the contract and insurance company.
What If You’re Already Uninsurable?
This is where long-term care planning becomes much more difficult. Once you’ve developed a serious condition and can no longer qualify for private long-term care coverage, your options can shrink dramatically.
You may eventually have to rely on some combination of:
- Personal savings
- Retirement accounts
- Investment accounts
- Family assistance
- Existing insurance
- Veterans benefits, if eligible
- Medicaid
This is precisely why waiting can become so expensive. You don’t want to find out at age 72 that you have Parkinson’s disease and then decide that it would be a good time to purchase long-term care insurance. At that point, the risk you’re trying to insure has already materialized. The insurance company may no longer be willing to take on that risk.
Medicare Is Not Long-Term Care Insurance
This is another major misunderstanding among retirees. Medicare and Medigap can be important parts of a retirement healthcare strategy, but they should not be confused with comprehensive long-term custodial care insurance.
Many retirees assume Medicare will simply pay if they eventually need years of assistance with everyday activities. That can lead to a serious gap in a retirement plan.
Someone could need long-term care for years while their healthy spouse still needs money for everyday living expenses. Those expenses can include housing, food, utilities, transportation, healthcare, taxes, and normal retirement spending.
That’s why long-term care planning isn’t only about protecting the person who becomes sick. It’s also about protecting the healthy spouse.
Medicaid Is the Backstop, Not the First Plan
Medicaid can help pay for long-term care for individuals who meet their state’s medical and financial eligibility requirements. However, Medicaid should not automatically be your first long-term care strategy.
Eligibility rules can involve:
- Countable assets
- Exempt assets
- Income
- Transfers of assets
- Look-back periods
- Spousal protections
- Estate recovery
- Other state-specific Medicaid requirements
The idea that you simply have to become completely broke isn’t always an accurate description of Medicaid planning. There can be protections and exemptions, particularly when a healthy spouse remains at home. However, families may still have to spend down or restructure significant assets before Medicaid becomes available. That’s why waiting until someone is already entering a nursing home can put a family in an extremely difficult financial position.
Medicaid-Compliant Annuities
A Medicaid-compliant annuity can sometimes be used as part of a Medicaid planning strategy. It is important to understand exactly what this type of annuity does: A Medicaid-compliant annuity is not long-term care insurance. It does not suddenly create hundreds of thousands of dollars of additional insurance coverage. Instead, it may be used to convert certain assets into an income stream in a manner designed to satisfy applicable Medicaid requirements.
These annuities generally have strict requirements involving the structure of the contract and its payments.
Who Could Benefit?
A Medicaid-compliant annuity may be useful in certain situations where one spouse requires nursing-home care while the other spouse remains in the community. It may also be considered by someone who is already facing long-term care expenses and can no longer obtain private LTC insurance. Because Medicaid rules vary by state and mistakes can be expensive, this strategy should generally be coordinated with an experienced elder-law attorney.
Pros
- Can potentially help with Medicaid eligibility planning
- May help preserve financial resources for a healthy spouse in certain situations
- Can convert assets into an income stream
- Can provide an option when purchasing traditional long-term care insurance is no longer possible
Cons
- Not long-term care insurance
- Does not create a large new pool of insurance benefits
- Contracts are intentionally restrictive
- Medicaid rules vary by state
- Incorrect structuring can create eligibility problems
- Professional legal guidance may be necessary
This isn’t normally the first strategy you would choose when you’re healthy and have years to plan. It’s more commonly a planning tool for situations where long-term care needs are already becoming a reality.
Who Should Seriously Consider Long-Term Care Insurance?
You should strongly consider investigating long-term care coverage if you’re still healthy enough to qualify and protecting your retirement assets is important to you.
You may want to look at coverage if:
- Alzheimer’s or dementia runs in your family
- Parkinson’s disease runs in your family
- Strokes are common in your family
- Chronic debilitating illnesses run in your family
- You have substantial retirement assets
- You’re married and want to protect your spouse
- You want to protect an inheritance
- You don’t want your children becoming your primary caregivers
- You don’t want to rely entirely on Medicaid
- You want more choices regarding where and how you receive care
You don’t necessarily need to insure every dollar of potential long-term care expenses. You may choose to self-fund the first portion of the expense while purchasing insurance for a larger or longer-lasting care need. The goal is determining how much financial damage you can comfortably absorb and how much risk should be transferred to an insurance company.
Who May Not Need Long-Term Care Insurance?
Long-term care insurance isn’t right for everyone. Someone with very limited income and assets may not be a good candidate if paying LTC premiums would interfere with basic living expenses. Insurance shouldn’t create a financial problem today in an attempt to prevent a possible financial problem years from now.
At the other extreme, someone with enough wealth to comfortably self-fund several years of care without affecting their spouse, lifestyle, or estate may choose to retain the risk. For example, someone with $15 million may approach long-term care planning very differently than someone retiring with $800,000. Everybody in between should at least compare the potential cost of care against the cost of transferring some of that risk to an insurance company.
Other Insurance That Can Protect Your Retirement Plan
Long-term care insurance isn’t the only type of insurance that can help protect your retirement plan. Depending on your situation, several other products may work alongside LTC coverage.
Life Insurance
Life insurance can help replace assets that were ultimately consumed by long-term care expenses. For example, suppose you intended to leave $500,000 to your children but ultimately spent $400,000 of your savings on long-term care. A properly structured life insurance policy could potentially help restore some or all of the inheritance you originally intended to leave.
Hybrid Life and Long-Term Care Insurance
A hybrid policy can combine legacy protection and long-term care protection within one strategy. This can make sense for consumers who want long-term care protection but don’t like the possibility of paying premiums for years and never receiving a benefit.
Disability Insurance
For people who are still working, disability insurance addresses a different but important risk. Long-term care insurance protects against the financial consequences of needing extended care. Disability insurance protects your income if sickness or injury prevents you from working. For somebody in their 40s or 50s, protecting their paycheck may be just as important as protecting against future long-term care expenses.
Our Advice
Get long-term care insurance before your health gives the insurance company a reason to say no.
If Alzheimer’s, dementia, Parkinson’s disease, strokes, pulmonary disease, or other serious chronic illnesses run in your family, don’t ignore that history. You aren’t guaranteed to develop those conditions. But that family history can be a reason to investigate your options earlier rather than later.
If you’re healthy today, you may have numerous choices. You could compare traditional long-term care insurance, hybrid life and long-term care insurance, long-term care annuities, shared-care policies, life insurance strategies, and partial self-funding strategies.
Once a serious diagnosis arrives, that list can shrink dramatically. If you wait until you’re already uninsurable, your choices may eventually become spending your own money, relying on family, restructuring assets for Medicaid, or using some combination of those strategies.
That’s why our advice is straightforward: Buy long-term care coverage while you’re still healthy enough to qualify for it. Waiting doesn’t make long-term care cheaper. It doesn’t make underwriting easier. And it doesn’t protect your spouse or your beneficiaries. It simply increases the possibility that when you finally decide you want the insurance, the coverage you wanted may no longer be available.
Compare Long-Term Care Insurance Options
The Annuity Expert can help you compare traditional long-term care insurance, hybrid life and long-term care policies, and long-term care annuities from multiple insurance companies.
Instead of looking at one product in isolation, compare how each option protects your assets, your spouse, and the inheritance you want to leave behind.
Book A Free Consultation
Our agents are ready to help you find affordable long-term care insurance alternatives. Book a call today to get started—there’s no obligation, and the service is completely free.