Over Half of Those Buying Long-Term Care Insurance Were Between Ages 40-59 in 2021
Sales of traditional Long-Term Care Insurance tripled in 2021, much of that coming from the State of Washington imposing a tax on those who do not own LTC Insurance. While most LTC Insurance was purchased in previous years by individuals in their 50s and 60s, the average age has been pushed down even more in 2021 because of the tax.
According to an analysis of industry data and the just released 2022 Milliman LTC Survey, 52% of those who purchased Long-Term Care Insurance in 2021 were between the ages of 40 to 59. This was up 2.5% from 2020 numbers for the same age groups.
Just over 24% of those obtaining Long-Term Care Insurance were people aged 60 to 69. In 2020 this group represented 41% of all sales. The most significant increase, mostly coming from the State of Washington, came from much younger demographics.
Tax a Motivation for Younger Buyers in Washington
Jesse Slome, the Director of the American Association for Long-Term Care Insurance, says the tax motivated many younger people in Washington.
The change can be fully attributed to the fact that younger people in the State of Washington applied in record numbers in order to avoid the new state-imposed tax that is still projected to be imposed.
Jesse Slome
According to Slome, some 21% of individuals who purchased traditional Long-Term Care Insurance in 2021 were age 39 or younger. Additional people in all demographics purchased asset-based policies that combine life insurance or annuities with a qualified rider for long-term care. In order to avoid the tax, an individual must own a Long-Term Care Insurance policy of any type that meets federal guidelines under Section 7702(b) of U.S. Code.
LTC Insurance More Affordable
Slome said that many younger people faced tax bills of as much as $1,500 and $2,000 yearly. The tax is based on total earned income meaning higher earners will pay more. Long-Term Care Insurance provides substantial benefits for as much or less than the tax.
With several states, including California and New York, getting close to approving their own tax plan, more people will be considering coverage even at younger ages. In the past, people obtained coverage as part of their retirement plan to protect assets and ease family stress from the costs and burdens of aging.
Traditional health insurance and Medicare (including supplements) will only pay a limited amount toward long-term health care leaving many families out of pocket for expensive professional services. Without Long-Term Care Insurance, family members must become caregivers trying to balance their career and family responsibilities with that of being a caregiver.
Medicaid will pay for long-term care for those with little or no income or assets. Some families exhaust their savings by paying for care out of pocket and end up on Medicaid.
Protecting Retirement Funds - Avoiding the LTC Tax
The growing interest in long-term care planning is partly due to the increasing desire to protect assets, access quality care options, and reduce family stress and anxiety. With several states considering joining Washington with their version of the LTC tax, more younger people are taking a proactive approach to planning and avoiding the tax.
Between the high cost of professional long-term care services and the burdens placed on loved ones, long-term care is a growing problem. The tax has become an added wrinkle.
Most people have been obtaining Long-Term Care Insurance in their 50s and early 60s, but more exposure to the problem and the tax make long-term care planning something adults of all ages should consider.
Long-Term Care Insurance is custom designed and priced, in part, by your age at application - How Much Does Long-Term Care Insurance Cost?
Several States Considering LTC Tax
If you live in California, New York, and the other states planning for the tax, experts suggest being proactive in obtaining coverage. It is unknown how much time will be provided to obtain coverage after the tax becomes law. It is thought that these states may give residents a short period of time than Washington gave their residents.
Be sure to seek the help of a qualified Long-Term Care Insurance specialist to find the right coverage. Many financial advisors and general insurance agents are not experienced in this area, and because of the tax, you don't want to make a mistake.
Your health and family history will also play a role in obtaining coverage since Long-Term Care Insurance is medically underwritten. Every insurance company has its own underwriting criteria. A specialist who works with the top companies will match you with the best coverage at the lowest price based on your age, health, and family history.
Retirement planning is hard enough, but it is even more challenging when you have to consider the financial impact long-term health care costs will have on your cash flow, lifestyle, and legacy. But long-term care is both a family issue and a cash flow issue. Being prepared is a vital part of retirement planning, even if you live in a state not considering the LTC tax.