Long Term Care Planning: Taking a New Look at Life Insurance

Long Term Care Planning: Taking a New Look at Life Insurance

I had the chance to visit a nearly long-lost cousin last year, a couple of months before happy get-togethers were put on hold.

This cousin isn’t one of the Greeks: she’s from the Irish-African American branch of the family – we can weave a wonderfully beautiful tapestry in our country. She has an equally swell husband, French or something, and they’ve made a good life.

Lauren is nearly 70 now, and her husband, 75. They share their Minnesota home with Sam, the border collie, and her mother, Mum, who’s 91. Mother impressed me by matching us fork-for-fork when we tackled brats or salmon, and frankly outlasted me during a trek through the Mall of America – seeing all those things I don’t want to buy was draining. Mum powered on, demanding giant soft cookies and lemon iced tea. Old folks can be brutal on the middle aged.

She does well, walking the dog, her daughter and son-in-law, but the signs are there to see. Sometimes, Mum forgets where she is – wonders when they’re taking her back to her own house, sold long ago at her husband’s death. She repeats herself, raises decades-old affairs, can’t recall who’s alive and who’s gone. Lauren worries, of course. She’s determined her mother will never live anywhere but the family home, but one day, facts may have to be faced.

Keep in mind, my cousin and her spouse are no longer young. Filial piety comes at a price: the strain of caring for a slowly deteriorating parent is there on their faces. If Mum became seriously ill – at her age, we can expect it – professional long-term care, possibly at home, potentially at a nursing home or other care facility, could quickly become imperative.

One of my favorite sources, Lincoln Financial Group, surveyed people who care for aging family members at home. Eighty-four percent described the emotional burden of their loving efforts, the number-one problem cited by respondents. Consider the effects of this stress on the caregiving relatives as they age – the survey revealed this was a serious concern, too, mentioned by 46% of participants.

Nearly everyone who tests the boundaries of longevity will need long-term care, sooner or later. In the case of my cousin’s household, what would happen if they all needed care, simultaneously? The family is affluent, but not Croesus-rich. Their assets can only go so far and something must be left to pay for the post-recovery years. We certainly must plan for the best.

Yes, my cousin has long-term healthcare coverage. She was an early customer: her father died 25 years ago, and Lauren immediately determined that when the day came, she’d care for her mother. Careful planning is in her blood, fostered by years in a high-tech, politically infused industry. That gave her the experience, income and exposure to options needed to make things work. If only everyone had the resources, opportunity and foresight.

Let’s say one of your own parents needed long-term healthcare, administered either at home, at a medical facility or in a nursing home. The costs are high and rising.

Indeed, in researching this article, I found a wide variance in LT care cost estimates. Prices vary by state, inflation predictions for the next 20 years suggest we are entering the realm of pure unpredictability, and the Department of Health and Human Services’ own figures are outdated: their latest data is for 2016.

Our best estimate: homecare runs around $60,000/year, while a good nursing home costs double that amount. The average stay is hard to predict, but we would set the planning benchmark at three years of coverage. All estimates suggest that LTC costs will rise dramatically, doubling in the next 10 or 20 years, depending on who’s guesstimating.

Long-term care insurance suggests itself as an obvious candidate for covering these costs. Traditional LTC products were popular for a while, until the insurers realized they’d based their premium models on outdated longevity and care-cost assessments. Premiums jumped, customers blanched and new clients shied away.

The use-it-or-lose-it nature of dedicated LTC policies also sank in – if you die before you need coverage, there’s no ancillary benefits, so all those premium payments are gone with no return. The peace of mind argument held little water with potential new customers, in times when high-yield investments offered better prospects – until the pandemic struck, anyway.

Hybrid life insurance policies offer a solution to the problem of gun-shy clients who need LTC coverage. These products are life policies that includes LTC benefits, as well as a death benefit – if you don’t need care, your heirs receive the payout.

Several flavors of hybrid are available. Linked benefit policies generally offer an LTC benefit equivalent to five times the accumulated premium, along with a death benefit. Linked benefit hybrids are popular, supplanting the now-unfashionable standalone policies: in 2018, the product accounted for 84% of LTC coverage purchased, based on data from the American Association for Long-Term Care Insurance.

Insurers usually counsel their clients to consider purchasing LTC coverage at around age 50, and to act swiftly if they cross the age-60 threshold without it. This is the accepted wisdom.

We take it a little differently: if at all possible, customers should definitely, without fail, buy LTC coverage in their early 50s – age 55 should be the panic-button deadline. The reason is cost. Hybrid policies are much more expensive than standalone LTC coverage, by a factor of four or more. This ratio, and the actual cash cost, rocket up dramatically after age 60, and the trajectory continues with each passing year. As always, good health keeps down the premiums, a further argument in favor of acting early.

It may be hard for clients to swallow, but they should understand: the need is great, the threat clear and present, and the cost of dalliance painful, even heartbreaking. Old-school policies can still work for those unable to afford the hybrids, though the latter clearly offer the greatest long-term value.

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