When you go shopping for a car, thanks to the window sticker or a copy of your favorite consumer magazine, it's relatively easy to figure out various options cost. Want the sports package, add $1,800. Want fancier rims? That will cost you another $500.
But when you are shopping for long-term care insurance, you don't have the same advantage -- the ability to know what adding various options to a base plan of protection will cost you. Until now. Before I share some general information, it is important to understand that what you pay for long-term care insurance will vary from one company to another. Each sets their own pricing. Each determines which discounts they'll offer that can save significant dollars. For that reason, it is important to speak to a knowledgeable professional who has access to policies from multiple insurers. Or, at least, compare.
There are many factors that go into pricing the cost for long-term care insurance. For example, you might be surprised how important the prevailing interest rates are. Insurance companies have to invest your premiums for many years to build the reserves needed to ultimately pay your claim. A one percent decline in interest rates could result in a need for costs to go up by 10-to-15 percent. The good news is that with interest rates at all-time lows, for policies sold today using current extremely low interest rates, the need to raise premiums has been significantly reduced. Good news for all.
But let's look at what adding additional coverage will cost you. Long-term care insurance premiums are proportional to the selected Maximum Daily Benefit Let's assume a base plan of protection is a $100 daily benefit ($36,500 a year in current dollars). Increasing from a $100 daily benefit to a $150 daily benefit generally increases price by 50%. Increasing to a $200 daily benefit doubles the annual premium.
About a fourth of all policies sold today provide three years of protection. That $100 a day for three years is about $110,000 in total (current) protection. You have an option to buy coverage for a longer period of time. Going from 3 years to 5 years typically will increase rates from 30% down to about 20%. The percentage will actually decreasing based on the issue age (your age when you buy the protection). Going from a 3-year policy to an unlimited policy increases rates by about 75% to 65%, again decreasing by issue age.
Another option is your choice of a deductible period. Last year, just over 80% of buyers selected a 90-day deductible (referred to as the Elimination Period in long-term care insurance lingo). Going from 90-Day deductible to a 30-Day deductible increases rates by between 40% and 45%.
One of the most important options you want to seriously look at is also the most expensive. That's an option that will increase the value of your benefit each and every year. Because costs will increase, you want the protection you buy today to grow over time and be adequate in the years ahead. Adding 5% Compound Inflation Option increases rates by from 300% down to 30%, increasing slightly as plan increases, and decreasing sharply by issue age. Younger purchasers pay proportionally much more for inflation protection than older applicants simply because the value of their coverage will grow significantly more. Ask your agent to show you what your policy will pay in the years ahead.