No one likes thinking about spending their golden years in a long-term care facility and statistics show that when people do get around to considering the prospect, it’s sometimes too late to qualify or afford.
Nearly half of individuals who apply for traditional long-term care insurance after age 70 are denied by an insurer, according to the American Association for Long-Term Care Insurance. That’s because their health records disqualify them or the insurer simply doesn’t write policies for advanced-aged people.
According to Slome, nearly half of individuals who applied for traditional long-term care insurance between ages 70 and 75 were either declined or deferred their application. Over one-third of those applying between ages 65 and 69 were declined. The data comes from Association research as well as the just released 2022 Milliman LTC Survey.
Ages 55-65 'sweet spot'
“The sweet spot for looking into long-term care insurance is generally between ages 55 and 65,” Slome said. “Once people are covered by Medicare they start seeing more doctors which is great but often increases the likelihood that medical conditions will be included as part of their health records.”
But most people in the “sweet spot” aren’t ready to buy LTC, according to Bob Chitrathorn, CFO/vice president of Wealth Planning at Simplified Wealth Management.
"Most people don't know that they will need it and most don't think about it until it's needed.” — Bob Chitrathorn, CFO/vice president, Wealth Planning at Simplified Wealth Management
“That’s because people just haven't been taught how it works, the cost associated with the policy itself, but also the cost of LTC in general,” he said. “Essentially most people don't know that they will need it and most don't think about it until it's needed.”
According to Genworth and Merrill, A Bank of America Company, 7 in 10 Americans turning 65 today will need care for prolonged periods in their lives.
LTC companies and insurers originally underpriced their services because they underestimated how long people would live or based their prices on life expectancy data at the time. Moreover, underfunded policies had to be frequently revised or caused some LTC companies to fail, damaging the credibility and stability of the entire industry.
The delay in securing long-term care, or rejection by insurers, has thrown caregiving responsibilities to the children of aging parents. A new survey by Northwestern Mutual showed 46% of Millennials have been or are currently caregivers and 69% took on additional caregiving responsibilities during the pandemic. This has made them more acutely aware of how secure – or insecure – their parents are in terms of both their health and their finances, Northwestern said.
However, demographics show a rising number of childfree couples approaching or in retirement who cannot count on family support for long-term care. Eleven percent of the U.S. over 55 population is childfree, according to statistics. The U.S. Census found that only 2.5% of childless individuals over 55 get any financial support from family.
Have 'plan in place' by age 45
“When it comes to long-term care, the goal is to have a plan in place by the time they hit 45, said Jay Zigmont, founder of Childfree Wealth. “Their long-term care plan can be funded via investments or long-term care insurance. The challenge is to find affordable, stand-alone long-term care insurance.”
As long-term care costs continue to increase, it is more important than ever for families to be having upfront conversations and thinking about the impact of caregiving on their own financial situation, the Northwestern survey concluded.
Meanwhile costs are soaring, making LTC planning and advance preparation even more essential. A 2021 Northwestern survey found the national annual average cost for a one-bedroom assisted loving facility unit was $57,916. The national average daily rate for a private room in a nursing home was $315 in the markets surveyed.
Chitrathorn and other said that as people build financial plans, LTC costs should be added in.
“More often than not, the plan has a better chance of success when LTC policies are incorporated as the cost of care,” he said. “LTC is extremely expensive and doesn't seem to be getting any cheaper.”
More insurance companies are starting to include LTC riders to their life insurance policies,” he said.
“Most individuals with these riders will be able to access an amount of their death benefit to be used for LTC,” said Chitrathorn. “Some companies have built-in riders that may also allow for a discounted portion of the death benefit to be used for such things associated with LTC.”
In addition, there are some linked-benefit and short-term care policies that will accept older applicants,” according to Slome at the AAMSI.
“They will have health requirements as well but sometimes they can be easier to qualify for and should definitely be considered as viable options for those who want this protection,” he said.
Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].