Many people are surprised to learn that long-term care insurance is more expensive for women than for men. Some people even wonder if it’s legal to charge different prices for different genders!
Well, it is legal. In this post I will walk through why women pay higher premiums than men and will discuss the basics of how insurance companies set premiums and approach underwriting.
What is long-term care insurance?
Long-term care insurance is insurance that can help you pay for costs that you might incur if you become disabled for an extended period of time. It’s most commonly purchased by people who are approaching retirement and are worried about how they might pay for their care if they cannot take care of themselves (since neither Medicare nor normal health insurance will cover these costs). If you are just getting started, we have written a guide on whether or not long-term care insurance is right for you and determining the right age to buy long-term care insurance.
Long-term care insurance has been around for a long time, but it’s a product that isn’t widely known or talked about. There’s a well-documented gap between the number of people who have long-term care insurance and the number of people who could potentially benefit from it. Many people delay purchasing long-term care insurance for a number of reasons, with most people citing the expense of the policies as their primary reason for delaying purchase.
How are premiums set, anyway?
Like all types of insurance, premiums are determined by an individual’s (or institution’s) risk profile. In order to understand why that is, it is important to understand how insurance works in general (and how insurance companies make money).
By buying insurance, you are buying more certainty about your future in exchange for a little bit of money today. Some people refer to this as “limiting your downside risk”. The idea is that, if you are worried about a bad event that could have extremely negative consequences (say, your house burning down), you can purchase insurance that will limit your downside risk so that if the worst happens, and your house burns down, you will be able to purchase a new one without losing all of the equity you have built up.
Critically, you may be willing to purchase that insurance even if the expected value of the payoff is less than what you have to pay in premiums. That is, if you have a 1% chance of your house burning down, and a fire insurance policy for $300,000, you are probably willing to pay more than $3,000 for this insurance policy since you are paying to offload that downside risk onto the insurance company.
In general, this is how insurance companies set premiums — they attempt to estimate the risk of loss and then they set premiums slightly above the amount of that they would need to cover the loss so that, on average, the insurance company makes just enough money to stay in business. (If an insurance company charges premiums that are too high, they will not get any business because their competitors will offer better rates.)
The same is true for long-term care insurance — the amount that you pay in premiums is determined by your risk profile
Why are premiums for women more expensive?
As you might have guessed from the discussion above, long-term care insurance premiums are more expensive for women because women have a higher risk of needing long-term care! This is mostly driven by the fact that women tend to live longer than men. So
- Living longer exposes women to more risk of disability of all types. Older people are more likely to experience debilitating falls as well as experience the effects of progressive degenerative disorders like dementia and Alzheimer’s
- Because women tend to outlive their spouses, women are more likely to be left alone with no one to help them when they become disabled and are therefore more likely to need paid long-term care
This higher risk of disability means that long-term care insurance companies have to charge more in premiums in order to be able to cover the costs of providing care to people once they become disabled.
What should I do if I’m a woman who wants long-term care insurance?
Just because your long-term care insurance premiums are more expensive, does not mean that it’s a bad deal. In fact, that your premiums are more expensive because you are more likely to need long-term care should highlight the importance of seriously considering some sort of insurance to make sure you have enough money to be cared for when you need it.
Additionally, there are a few things you can do to try to get a good deal:
- Quit smoking! Tobacco use will make your long-term care insurance premiums much more expensive
- Get in shape and stay healthy — Long-term care insurance premiums can be impacted by your health, and the healthier you are the lower your premiums can be
- Buy long-term care insurance earlier — the younger you are when you purchase long-term care insurance, the lower the premiums will be. You can also read our analysis of the right age to buy long-term care insurance here.
Get Bolster
If you are ready to learn more about long-term care insurance, sign up for Bolster today. We will do a free review of your long-term care preparedness and our algorithms can analyze which policy is right for your unique situation. Click below to get started!