How Soon Is Too Soon to Buy Long-Term Care Insurance?

Every good financial plan includes some worst-case-scenario components. An emergency fund for when the auto mechanic uses the phrase "rebuild the transmission" or the boss says the word "layoffs." Life insurance in case you're not there to earn a living for those who rely on you. And for the more ambitious realists among us, long-term care insurance for those likely periods in our senior years when much of the help we'll require will be with the tasks of everyday life.

In this segment of the Motley Fool Answers mailbag episode, we hear from a couple in their late 30s who want to be prudent and are considering getting policies. Should they act now or wait until their 50s? Hosts Alison Southwick and Robert Brokamp -- along with guest Megan Brinsfield, director of Foolish Planning with our sister company, Motley Fool Wealth Management -- lay out the reasons why they'd recommend waiting.

A full transcript follows the video.

This video was recorded on March 26, 2019.

Alison Southwick: The next question comes from Matt. "When my grandfather needed nursing home care several years ago, it quickly became apparent why he was such an advocate for long-term care insurance. He and my grandmother gave me many gifts over the years, few more important than financial literacy and no small amount of security. However, apparently they also gave me a genetic disposition for worrying -- let's call it 'prudent preparedness.'"

Robert Brokamp: I like it.

Southwick: Awfulizing.

Brokamp: I like that.

Southwick: Let me just call it awfulizing here. "Prudent preparedness." "Now my wife and I are in our late thirties and I'm wondering if it's too soon to start thinking about long-term care policies of our own. The conventional wisdom seems to be to start that process in your early 50s, but I'm curious if there's any hidden disadvantages to beginning sooner."

Megan Brinsfield: When it comes to being worrisome, you are like the dream client of insurance salesmen everywhere, so I just want to caution that you should go into any insurance situation with prudence.

Now in your 30s, I would argue that long-term care is not your biggest risk. You mentioned being married. I don't know if you have children, but if you do have children, you should be thinking about if something happens to you that is not long-term care. Long-term care typically happens to people toward the end of their lives. What if you were to pass suddenly or if you became disabled? Those are two really big risks in your 30s because most of your financial plan is relying on your future earning potential. If that is lost, then you have suddenly chopped yourself off at the kneecaps.

I would argue that starting with a long-term care policy in your 30s -- one of the downsides to that is you're going to be paying premiums for a really long time. Thirty or 40 years before you may ever get the benefit of that policy. I was talking to an insurance agent recently, who said they price policies based on the fact that they want to get 10 good years of premiums out of somebody before a benefit is collected. So again, you're just setting yourself up for forking over a lot of money if you're starting in your 30s with this type of policy.

Brokamp: We talked before on this show about how the long-term care insurance industry has really struggled. It used to be over 100 providers and now it's down to about one-half dozen. GE, because it bought an insurance company, is on the hook for a lot of long-term care, and they just announced that they're going to have to increase premiums for a total of around $1.5 billion or something like that.

So often when you buy a policy you'll be told by the agent that the premiums probably won't go up, but that's not true. They generally do. The biggest provider of long-term care insurance is Genworth, and they have just decided to stop selling policies through agents and only directly through Genworth itself. They're trying to cut costs by cutting out the intermediaries. It's just always struggled.

So you're looking at a situation of jumping into a type of insurance that you're going to hold onto for 40 or 50 years in an industry that has really struggled over just the last 20, so you're taking on a lot of risk by taking on something like that now.

What you do if you don't have the insurance is just make sure that you save a lot of money. Just by reading your note, I can tell you're probably already doing that, and if you have a sizable portfolio by the time you're in your 70s and 80s, and need long-term care, you're going to be OK.