Being slammed with exorbitant bills for a nursing home stay is among the biggest potential budget busters in retirement.
That's why getting insurance to cover a chunk of the costs for in-home care, an assisted living facility or a private room in a nursing home is a personal finance move to consider. The key, though, is getting the most bang for your insurance premium bucks.
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The catch? The price of long-term care coverage can be cost-prohibitive.
The national median daily cost for a private bed in a nursing home in 2019 was $280 a day, or $102,200 a year — up nearly 2 percent from a year ago, according to insurance company Genworth's 2019 cost of care survey. A yearlong stay in your own room at an assisted living facility runs $48,612.
Those are big numbers that can eat through a retirement nest egg quickly. The average 401(k) balance was $105,200 at the end of September 2019, according to Fidelity Investments.
What's the sweet spot?
So what's the right age to buy a long-term care policy that keeps premiums affordable while saving you money on total premiums paid over the life of the policy?
Sure, you could get a policy with a lower premium in your 40s or when you turn 50. But you'll likely be paying premiums for more than two decades before you file a claim.
Shopping for long-term care insurance
Long-term care insurance premiums are cheaper at a younger age. But shopping for a policy between 60 and 65, starting at age 55 for couples, may get you the best combination of monthly affordability and fewer total dollars spent.
People older than 70 file more than 95 percent of long-term care insurance claims, and nearly 7 in 10 claims are filed after age 81, the American Association for Long-Term Care Insurance reports.
But if you live in New Jersey and wait until age 70 to purchase a policy that pays $250 a day for a private room in a nursing home for up to two years, your monthly premium will more than double (about 130 percent of the bill for someone buying at age 50), according to Genworth's long-term care cost calculator.
In this example, if a man alone got a policy at age 50, then the premium to receive $182,500 in covered benefits for a claim at 79 — the average age for filing a claim, according to the long-term care insurance group — would be $56,278, based on a monthly premium of $161.72. Waiting until 70 would mean a monthly premium of $370.88.
A woman pays more every step of the way when she's not part of a couple — as little as $43 more a month at age 50 and as much as $145 more at 70.
Rates for couples of the same age, no matter what gender, are less than double for the man alone.