LTCI Basics: How Long Will You Keep Paying Those Premiums?
No one likes to pay insurance premiums of any kind and long-term care insurance is no exception. We pay these premiums because the alternative leaves our retirement income and investment assets exposed to high risk if long-term care becomes necessary and, of course, we have to pay for the care ourselves. It is no secret that the cost of nursing facility care can quickly drain a retirement nest egg and force a retiree into financial ruin. By getting a long term care insurance or LTCI, a policyholder is accepting a small loss each year in the form of premiums paid. This small loss helps making sure that he or she will not be wiped out financially by unmanageable long-term care costs in the future. People who are unfamiliar with long-term care insurance often wonder how long the premiums will need to be paid. The answer is that there are three choices for the premium payment period usually offered by insurance carriers.
The most popular choice so far is a “lifetime” payment period that requires the payment of premiums until death or until the policy is activated. There are people who oppose to paying these premiums for a long time. In response to that objection I usually ask prospective clients to consider other forms of insurance that they most likely own. For instance, would they expect to only pay premiums for health or major medical insurance for a short time, or do they plan on paying those premiums for life? Wouldn’t they expect to pay auto insurance premiums for as long as they drive? Isn’t it reasonable to pay homeowners insurance premiums for as long as they own a home? As long as the financial risk is present, the payment of insurance premiums is prudent. Since the risk of needing long-term care is present for as long as we live, the premiums for long-term care insurance can be expected for the remainder of our life.
The second and third options for payment of long-term care premiums allow the policyholder to condense all of those expected premium payments into a shorter time period. For those under fifty-five years of age, a “pay to age sixty-five” option may make sense. For others a “ten-year pay” option may be a good choice. Because the expected premium payments over a lifetime are simply condensed into a shorter time frame, the cost of these premiums is much higher. So therefore, these choices usually makes sense for policy holders who can take advantage of tax deductions that help them reduce the overall cost of their long-term care insurance..