Investing in Long Term Care (Siudi) Insurance - Younger Vs Older
Having been in the news a lot recently, Siudi insurance is starting to move up on people’s insurance wish-list. As it should. The point of this piece however is not to talk about whether it is important to take out Siudi insurance or not (it is by the way), but rather, to analyse the costs and benefits of taking it out whilst you are younger - and the policy is cheaper but you may be paying into it for many years, or waiting until you are older to take it out – when premiums will be more expensive but you may spend less time paying in to it.
What is Siudi Insurance ?
Before continuing, a quick refresh. Siudi, or Long Term care, insurance is activated when a person becomes unable, through accident, illness or old-age, to perform a number of what are called the ‘Daily Living Functions’ without someone else helping them – i.e. eating a drinking, getting dressed, walking, etc. Alternatively, certain cognitive impairments alone may be enough to trigger the insurance payouts.
Whilst there are policies which cover a portion of LT Care costs through the kupot cholim, in this piece we will be looking at private policies, which people will take out in order to make up the shortfall from the Kupah policies. (Average LT Care costs in Israel are around 10,000 Shekel per month for in-home assistance, and around 15,000 Shekel per month in a medical facility - the Kupah pays out 5,000 Shekel per month for a maximum of up to 5 years).
Why is This Insurance Different ?
What is almost unique to Siudi insurance is the ability to fix your premiums for the entirety of the policy when you begin. Therefore, it is very much a case of the younger you start the cheaper it will be. Hence the comparison below.
You can stop paying for your policy at some point down the line, and the policy will still have residual value should you need to activate the policy after that.
To Invest Now or Later – That is the Question
In the table below we compare results of two 30 year old men and two 30 year old women. The first of each takes out a Siudi policy for 5,000 Shekel per month now, whilst the other does not take out the policy until the age of 50. All will stop paying in to the policy at age 75 for the purpose of this simulation.
Based on today’s costs for Siudi (we have used one of the insurance companies as an example), the results, in Shekel, are as follows:
From the above we can see that despite a 20 year head-start on payments, for both the 30 year old man and woman, the overall cost of the insurance is less, due to the steep increase in price of joining Siudi insurance when you are older.
Caveats
Against the Above Conclusion - The costs don't take in to account the opportunity cost, i.e. what if the 50 year old had been investing the money he/she was spending on siudi all these years? Would it still be worth it to start young? This is an important question, and one we will deal with in a future analysis.
For the Above Conclusion - A couple of BIG assumptions have been made, namely
The rates for siudi insurance will be the same when you join at the age 50 as they were for a 50 year old 20 years ago - which is extremely unlikely, as rates have been increasing in recent years.
Your health will be the same at age 50 as it was at age 30 - If there have been any medical issues that have come up between the age of 30 and 50, then even if rates have stayed the same, your cost may be higher, or, depending on the medical condition, you may no longer be eligible for Siudi insurance.
Of course everyone's situation is different, and needs to be analysed on an individual basis, however it is important to understand the mechanisms of Siudi insurance, and it's importance when one is looking at their overall insurance needs and long term investment plans.
At IAL we can plan and set-up Siudi Policies based on your individual needs and requirements. Contact us HERE to set up a free telephone consultation.
