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Tuesday, September 18, 2012

Does Long-Term Care Insurance at a Young Age Make Sense?


The average age of people buying long-term care insurance has been falling, as people seek to balance the possible need for nursing home or in-home care with the considerable cost of the insurance premiums. Even some very young people are buying the insurance, and a few of them are making claims under their policies, according to an industry group.

Last year, 3.5 percent of individual policies were bought by people age 44 or under, according to the American Association for Long-Term Care Insurance, which tracks industry data and trends. (In contrast, 56.5 percent of individual buyers last year were between 55 and 64, and the average age is now 57, down from 67 about a decade ago, according to the associat ion's data).

The youngest claimant is a young man who bought coverage at age 21 and began receiving payments under the policy at age 24; he has continued receiving benefits for seven years, association research shows. The youngest female policyholder currently receiving benefits under a claim obtained coverage at age 28 and needed care within the same year. She qualified for benefits that have amounted to over $135,000, the association said. A number of insurers reported claims from policyholders in their 30s, the association found.

The association didn't gather information about why younger adults make claims under the policies. But it is likely that they had an accident or were diagnosed with a serious medical condition that required longer periods of care, said Jesse Slome, the association's executive director. (People who already have serious medical conditions are ineligible for long-term care insurance, which requires health assessments before applicants ob tain coverage.)

But does purchasing a long-term care policy at a young age generally make financial sense?

It's true that younger people tend to qualify for coverage more easily and pay lower premiums. A policy that provides for $164,000 in total benefits over time before it runs out, with the option to increase coverage in the future, costs roughly $635 annually â€" or about $53 a month - for a 25-year-old, according to the association's 2012 price index.

Enid Kassner of the AARP's Public Policy Institute said people in their 20s and 30s should be cautious about buying the insurance because while their premium may seem low at a time when they may not own a home or have children, it's very difficult to predict whether they will be able to continue to afford the premiums over a very long period of time. “It's not a product for everyone,” she cautions.

Most policyholders, she noted, don't use their benefits until they ar e in their 80s. If young policyholders later decide that they can't afford or don't want to continue the insurance, they will have wasted all those premiums they paid since they don't accrue to your benefit the way they might with certain kinds of life insurance. (And young policyholders should expect that premiums will go up over time, she said; while most policies are meant to have stable premiums, insurance companies sometimes can impose increases, sometimes large ones, on an entire “class” of policyholders). While Ms. Kassner said that she focuses primarily on policy issues rather than on consumer matters, “The advice I tend to give is, you should only buy if you intend to keep it.”

Another caveat to buying the insurance at a young age, she noted, is that few long-term care policies sold today provide lifetime benefits; they typically are structured to provide specific benefits over a certain period of years. So if a young adult bought a policy and then nee ded to file a claim because of an accident or illness at a young age, the coverage wouldn't necessarily extend for the rest of his or her life. (Mr. Slome of the long-term care association said lifetime coverage is available but is generally very costly because of the unlimited benefits.)

Would you consider buying long-term care insurance before you turn 50?