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When to Buy Long-Term Care Insurance

You may struggle with the question of whether or not to buy long-term care insurance. But if you decide that you want it, choosing when to buy it can be even more of a challenge.

Long-term care insurance pays out financial benefits to help you pay the expenses of nursing homes, home health care, and similar needs resulting from chronic illness or disability. Because the cost of such care is so high -- $5,000 per month or more for full-time care in a skilled nursing facility -- many financial advisors recommend insurance coverage to keep those costs from wiping out your entire life savings.

Of course, long-term insurance comes at a cost. Leading long-term care insurers, including Manulife Financial (NYSE: MFC  ) , Metlife (NYSE: MET  ) , and Genworth Financial (NYSE: GNW  ) , aren't giving benefits away -- these policies are highly profitable for them. Since most people don't even like to think about debilitating diseases or serious injuries -- let alone start making premium payments -- it's easy to procrastinate when it comes to buying an insurance policy. But is that the best course, or should you go ahead and start paying premiums now?

Now or later?
Insurance companies that write long-term care policies inevitably point out that the earlier you buy a long-term care policy, the lower the premiums will be. According to one source, a typical policy that costs a 50-year-old $914 annually would cost $2,287 for a 70-year-old and $5,732 for an 80-year-old. Another source claims that premiums typically double if you wait from age 50 to 60, and triple between age 55 and 65.

Of course, there's a catch to that. The earlier you start paying premiums, the more payments you'll make during your lifetime. For instance, if you don't need care until you're 90, buying an insurance policy at age 50 means that you paid premiums for 40 years. If you'd waited until you were 70 or 80, you'd only have had to pay those higher premiums for 10 or 20 years.

Lost returns
Too many illustrations look only at the total amount of premiums you pay over your lifetime. In the above example, an agent might say that you'd be better off paying $914 per year for 40 years -- a total of $36,560 -- than paying $5,732 for 10 years, or $57,320 in total.

However, that ignores how that $914 a year could have grown over time. Say, for instance, that you decided to hold off until age 80. If you invested the money you would have spent on premiums and earned a 10% return, you'd have over $165,000 in your account by the time you turned 80. That'd pay for a lot of premiums.

Early coverage
On the other side of the coin, waiting to buy long-term care insurance can be a big gamble. Although the majority of long-term care patients are senior citizens, many conditions, such as strokes, brain injuries, and heart attacks, strike many people before age 65. If you forgo coverage and your health deteriorates, you might not be able to buy coverage at all in the future.

How big a gamble waiting is depends on a number of things. If you're already having health problems, or if your family has a history of health trouble, then the odds are better that you'll want coverage sooner rather than later. You should also look at other insurance you may have, including your traditional health insurance and disability coverage, to make sure a long-term care policy wouldn't overlap with something you already have. That will be unusual, as most traditional health insurance excludes or severely limits coverage for long-term care expenses.

In the end, only hindsight will tell you the perfect solution. As long as you understand the costs of getting early coverage and the risks of waiting, you can be comfortable with whatever you decide.

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To learn more about whether long-term care insurance is right for you, check out our personal finance service,Motley Fool Green Light. You'll find guidance on whether or not you really need long-term care insurance, as well as helpful information about the various options long-term care policies offer. Your satisfaction is insured with our free, no-obligation 30-day trial.

If you're interested in knowing more about the basics of insurance policies, take a look at our Insurance Center.

Fool contributor Dan Caplinger is willing to gamble on long-term care -- at least until he turns 40. He doesn't own shares of the companies discussed in this article. The Fool's disclosure policy cares about you.


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Dan Caplinger
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Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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