Considering Long-Term Care Insurance? Age And Health Matter More Than You Think

Here are two facts about long-term care insurance that you might not be aware of. The age when you apply matters. So does your health.

Let’s start with age. Long-term care poses a significant financial risk to consumers. You may need costly care for years in your home or in an assisted living care facility. You could need more skilled care that requires a stay in a nursing facility. In any situation, the costs can be significant. Few, if any, of these expenses are covered by Medicare or other programs. 

The high cost of long-term care poses a financial risk to individuals as they age. Medicare does not cover long-term care costs; individuals who meet poverty guidelines may qualify for Medicaid to pay for state-based long-term care.

Insurance companies offering long-term care insurance also face financial risk. Their exposure to risk is considered to be greater than that which individuals face. Insurers recognize that those purchasing this protection view themselves as facing a greater likelihood of needing care. This phenomenon is referred to as anti-selection. It means an increase in the chance for a person to take out an insurance contract because they believe their health risk is higher than what the insurance company has allowed for in the premium amount. An individual whose parents suffered from dementia or Alzheimer’s is more likely to buy long-term care insurance than someone whose parents lived a long and healthy life. Someone finding it harder to walk in their early 60s realizes they are likely to need assistance one day in the future. Additionally, more people living longer in care burdens insurers. 

Traditional long-term care insurance products first gained traction in the 1990s. Since then, over 10 million individuals have purchased this protection. Around 300,000 are receiving benefits. As a result, insurers have acquired quite a bit of relevant data and experience. 

The ‘Sweet-Spot Age’ for Traditional Long-Term Care Insurance

The knowledge gained by insurers has enabled them to fine-tune how they offer coverage. For example, most will no longer offer traditional long-term care policies to those who are aged 75 or older.

A 2022 analysis of long-term care insurance data by the American Association for Long-Term Care Insurance found that half of new policies are purchased by people between the ages 55 and 64. About 15% of policies are purchased by individuals aged 50 and 54. The same percentage of buyers fall between the ages of 65 and 69.

For those older than 70 or 75, options may be available. A number of hybrid long-term care policies accept applicants at older ages. These plans combine life insurance with a long-term care benefit. Some short-term care policies, available in about 35 states, will accept applicants up to age 85.

Your Health Affects Rates and Approval

One of the reasons that insurers stop accepting applications from older individuals is the likelihood that pre-existing health conditions will result in the need for long-term care. It costs the typical insurer anywhere from $600 to $800 to underwrite an individual applicant. Underwriting thousands of applicants unable to meet acceptable standards can be significant.

According to the Association’s 2022 industry analysis, nearly half (47.2%) of applications made by people aged 70 or older were declined because of health reasons. These denials include obvious conditions, including already needing care, use of a walker or wheelchair or a dementia or Alzheimer’s diagnosis.

Your height and weight can also be factors in getting approved for coverage. Each insurance carrier will set different qualifications regarding ratios they will consider acceptable. While smoking will not result in declined coverage, certain usage could lower your health rating.

The percentage of applications declined in 2021 was only 20.4% for applicants between 50 and 59. It increased to 30.4% for applicants between 60 and 64. The sweet spot is applying prior to starting Medicare, which includes an array of free medical screens. While free is great, these screens can uncover conditions that insurers will view with concern.