Long Term Care Planning: What Would You Do?
Be the bigger adult and address the hard problems with people you love before you’re forced to make tough decisions down the road.
My father in law was a smart, active man. An engineer who built houses on the side for fun and profit, he ran nearly every day and lived on healthy foods. He was that guy who everyone knew when you went out to lunch. He had an easy smile and a nearly easier laugh.
I was lucky that a guy this smart would come to his daughter’s son for financial advice. In some ways (like most of my clients) he didn’t need it. He was at the top of his game in most aspects. He just had one big gaping hole in his plan: he didn’t want to talk about illness or mortality.
One problem I saw in most financial plans, including my father in law’s, was that although they did a fine job of picking investments that they knew, their plans generally had no escape valves. Some people only invested in stocks,. Others owned only real estate. Some had all their money in the 401k plan at work and wanted to retire at 50.
My father in law’s problem? He was so insurance-adverse that he’d decided to do nothing.
Disturbing Long Term Care Stats
The threat of a catastrophic illness is real. While the threat of a fire burning your home is 1 in 1,200 and the risk of an automobile accident is 1 in 240, the chance you’ll need some sort of long term care help is 1 in 5. Those ain’t good odds.
So, as I did with every client, my job was to talk about it. Did I like this talk? Absolutely not. It was my least favorite meeting. But I had a job to do. What action they took was up to them.
When you talk about long term care, talk about the three options available:
Long Term Care Strategy: Your Three Choices
Assume the risk. This option is best for people with nothing to lose or for people with enough money that they can “self insure.” Much like most life insurance uses, long term care protects assets you can’t afford to lose.
What’s interesting about long term care is the way many of my wealthiest clients saw the products. Based on past comments here on the blog, many of my readers are like me: they want as little insurance as possible. That’s smart for people who are struggling to reach the “finish line” on financial independence. But when financial independence is assured, I met many wealthy individuals who could afford to self insure who decided not to because the cost in assets was potentially so great. In short: the premium payments on an insurance policy is so small that they’d rather insure the risk.
Hand the risk to an insurance company. Regardless of what I said earlier about wealthy individuals, this is a tough pill to swallow. The reason my father in law didn’t want to talk about long term care? It’s uber-expensive. The funny thing is….the reason it’s expensive is why you need it: actuaries for the insurance companies price policies higher when they think the product will be used. LTC is expensive because they think you’re going to need it.
Here’s a creative strategy that worked for a few people: I had some clients that weren’t worried about outliving assets, but who did want to make sure they still had a legacy for their family. Instead of buying a long term care policy they purchased an immediate annuity. The money from the annuity purchased long term care and an insurance policy in the amount of the annuity. While the person lived the annuity paid the insurance cost and when they died the insurance policy replaced the money that was spent.
Take some of the risk and hand some of the risk to an insurance company. In this scenario, you play the statistics. The average person will need long term care for 2 and a half years, so buy a policy that covers just longer than that. Sure, it doesn’t cover the horror stories of long, long term care, but you’ll cover the likely amount of time. Raise the deductible so that you pay for anything short term out of pocket. Moves like these can decrease the cost of insurance so that you can still focus on your goals while not worrying about the “what if’s” associated with long term care.
How it turned out for us:
My mother in law was very worried about the threat of long term care, but my father in law decided to assume the risk, even though they weren’t wealthy. His family had a history of Parkinson’s disease. Sadly, it struck him, too. Because they didn’t have enough money to afford long term care, my mother in law ended up caring for him. He fell a lot. She couldn’t help him up so she’d have to call an ambulance. He became harder and harder to take care of. In some ways it was lucky that he fell and hit his head while insisting that he walk the dog. He passed away before the big bills would have happened. However, the toll on my mother in law, seven months after his death, is noticeable.
What you should do: If you have anyone over age 50 in your family, talk to them about catastrophic illness. If you talk about your options early, you’ll never have to worry about the topic again.
Have you had to have this hard talk with a friend or relative? How did it turn out? What would you advice people to say or avoid?
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