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?
My in-laws are the exact same. Hubby and I are in the process of getting private life insurance and they looked at us like we had 10 heads when we told them. They really just don’t get it. Even with a heath scare they think their 50k in insurance from work is suffice. I’m hoping when we get ours organized we can chat with them.
$50k in insurance…wow. You definitely don’t need a math degree to figure out how long that’ll last. Sounds like that’s going to be a hard, hard conversation.
Right on Joe! Our parents are on the opposite ends of each other. My Mom and step-dad bought LTC insurance about 15 years ago right before they turned 50. My in-laws, on the other hand, are the complete opposite and it makes no sense. My father in law is a very smart man and retired recently from being a contract negotiator. He is brilliant when it comes to money, but they don’t even have a will yet. It just makes me wonder how he could miss something so glaring.
That’s wild that you in particular, with what you do, get to see both sides of the issue first hand. I didn’t want to look at my estate either when I was doing my plan. However, I couldn’t believe how relieved I felt when it was taken care of.
My parents are in their mid/late 50s and just getting LTC set up. Fortunately my wife and I didn’t have to do any convincing, although I think they were impressed that we asked.
What do you think about Dave Ramsey’s advice not to even consider LTC until age 60?
I personally like it, although statistics show that most strokes happen prior to 60….so it’s a tough call. Also, premiums ramp up so fast after 60 that if you purchase it at your parent’s age you save a ton of money over your lifetime.
So…I understand why he says 60, but family history should play a part in that decision.
Health Care Bubble.
You heard it hear first.
This term will start picking up more steam as time passes.
These cost plus scam artists health insurance companies have been charging $100 for cotton balls for years. The music will eventually stop though.
The best way to take care of your elders is to turn to family.
The sooner we get back to tradition the better off we’ll be.
Wow, dude. Once again, Darnell, you show up with the wrong conclusion. I’ll bet your family will love you when you saddle them with the drooling, 95 year old version of you. Glad you’re not a relative of mine that I’d have to care for. How disrespectful of other people’s lives that is!
I really never talk about mortality, gets me sad 🙁 But seeing how it is so important, I really should open up and have that conversation with my wife. We are relatively new parents and it is about time we got our insurances in order and make plans for when we are not around.
Before this would have probably been too early, Christopher. Sounds like you’re handing this at the right time. Isn’t it funny what having children does to your feelings about mortality and responsibility?
I like the annuity/life insurance idea. So far I self insure, having no descendants I am not too worried about leaving something behind. My grandparents live like they are never going to die, they are 85 and quite healthy, and all their four parents died in their sleep but if they needed care I don’t think they have anything planned. I wouldn’t want my family to have to make those decisions for me.
Pauline you seem like the perfect candidate to self insure. No sense spending the money on unnecessary insurances. Your grandparents, on the other hand, might be trouble. Luckily (and this is morbid) the older they get the better chance they’ll pass away quickly and not need extended care.
It’s important for people to remember that they do have choices in this situation–especially before emotions take control and dictate some expensive decisions!
Amen. It’s about evaluating all of your choices and NOT having an LTC policy shoved down your throat.
This was an issue for us when we eventually started to look at insurance and discovered that we were way over-insured for the wrong things. I work on my own at home and had critical illness insurance but it wouldn’t have covered our mortgage and debt.
The likely accident could be a computer keyboard falling on my foot. The problem is that the policies are written for everyone who may drive to work, play dangerous sports and live a more risky lifestyle than I do. So it was actuarially silly. We cut that insurance and took term cover for our mortgage and debt – it was a lot cheaper.
Now the latter is no longer, we may reduce it.
But long term care is a potential issue that we are looking at now.
Funny, John. That was most of my job as an advisor! I’d eliminate a bunch of silly coverages that were totally unnecessary for someone’s situation and generally beef up the insurance levels in areas that made sense. People get “sold” insurance instead of thinking about risk. It sounds like you flipped to covering risk instead of covering the keyboard accident! You might say “Ouch!” but I doubt you’ll have a big disability need for that 😉
I saw firsthand how long term care can cost a lot. My mother lived at some level in assisted care/nursing facility. It was expensive, but she funded it out of savings! The good news was she had savings, but insurance is less expensive and a better choice. I bought long term insurance nearly 5 years ago. My plan is to never enter a long term facility, but it also covers at home care which is what I prefer.
I completely agree, KC. It’s home care for me all the way if/when I use insurance for LTC.
Such a sticky subject. Mr PoP’s mom claims that the biggest ROI she ever got was on a long term care policy for her mother that she bought shortly before her mother took a big turn for the worse. Sadly grandma’s not around anymore, but the LTC policy took good care of her and protected her assets while she was alive.
So I’m hoping considering the pride in that successful investment that they’ve got LTC coverage… but how does one even broach the topic without being asked?
Great question. Even as someone’s advisor I found it difficult, and it was my job to bring that up! The easier discussion is to discuss how they’re handling “catastrophic illnesses” and do not frame it around insurance (plus, it really isn’t an insurance issue…it’s a “this may happen to you, so how would you handle it” issue). The only unacceptable answer is “it isn’t gonna happen to me.” Then refer to those statistics I laid out in the piece. Some people also have more luck starting with estate planning. For some reason it’s easier to talk about death. Also, “what if a nurse needed to come to your home” is an easier topic than “nursing home.” If I ever bought LTC coverage for myself, it would definitely include home care.
My parents are very pro-insurance and have had long term care insurance for years, mostly because my mom insists. My dad thinks he’ll be fine forever, but at least she put him in the game. My inlaws are very poor and have no assets, so either us, my sister in law, or the state will be caring for them if they need it. As soon as I hit 50, I’m signing up. After seeing how hard it was or my parents to care for my grandparents when they were unable to, I don’t ever want my daughter to experience that. I think I’m going to be fine as an old lady, but you never know.
I haven’t had to deal with long-term care for any of my relatives (my parent’s may have to deal with it very soon for my grandparents), but this is a good warning that it needs to be factored into your financial plan for retirement and beyond.
This is a timely post for me. We’re driving back from Miami where we have spent the last couple of days sealing with estate planning issues for my parent who are aged and declining. Unfortunately there was no estate planning done for my parents until very recently, which is a hard pill to swallow but we’re doing what we can in the amount of time we have. There are so many aspects of trying to handle this, paying their bills, arranging for cleaning services and home health care. Home health care could have been a threat to whatever assets they currently have since U.S. Medicaid requires that you basically be a pauper to get assistance. Luckily enough it looks like their doctor is making arrangements for home health care through their Medicare. So far everything looks like it will be covered so there will be a minimal threat to their asserts. The saga continues!
I was reading that on your blog, Jose. What a tough situation. You see to have tons of work to do.
It’s my understanding that Medicare will pick up a skilled care facility for only 100 days, right? Then you have to requalify? What happens to them after that?
Everyone definitely needs an LTC strategy. Insurance? Maybe or maybe not….
I looked a few LTC policies and was just confused with all the options. Do you have a follow up post with a suggest age (I’ve heard 55 and others 60) and a break down of the possible options with LTC insurance?
Great idea, Brent. I’ll get on that one.
I remember when your father-in-law passed away last year, and the nice post you wrote while you were with him in the hospital.
I spoke to an insurance agent a few years ago about long term care for myself and my husband, and the difference between that and disability insurance. Both are extremely expensive.
I know my father does not have any long term care insurance either but has enough saved to look after himself for a very long time, and he is only 84.
For him, then, it sounds like self-insurance is probably best. If you have the money, you don’t need insurance (something many insurance agents don’t want to hear…but is true). However, like KC said above, some choose insurance anyway because the premiums are so cheap comparable to their asset base. My clients with plenty of assets decided to self insure the majority of the time.
I had a talk with my mom in 2010 when I helped take care of her after double knee surgery. It went quite badly. I was hoping my mom would come live with me before anything bad happened, and I would take care of her and everything would be peachy. She wouldn’t talk about it, won’t move from way up north, and refuses to talk about anything that has to retirement. I don’t even know how much she has saved for retirement, but I know she didn’t start saving until after I was out of the house. My dad is way worse. He wants to die in the woods and let a bear eat him and he thinks his house he just sold for $700,000 (not including buying a new home, moving, taxes, etc) was supposed to be his retirement. This is why I have insurance, retirement savings, going to school and paying off debt now.
The one thing that bugs me about care facilities here is that it is tied to your income. So if you have a lot of income, you pay more for a room. Great for low income residents, but it doesn’t seem fair to wealthier seniors – shouldn’t they get some value for having saved and accumulated wealth? At least a nicer/private room?
We haven’t looked into long term care insurance for ourselves, but I suppose we will have to one day. I am one of those people who gets very weirded out thinking about my own mortality.
Custodial care for my MIL would have cost her $7k/month- in a shared room, in a medicaid approved facility. Her disability payments meant that she made $200/month too much to qualify for Medicaid. And yet, the woman never even made close to $7k/month in her life. $200 too much for Medicaid still meant her income was less than half of the cost of staying in a nursing facility. In that way, she/we were lucky that she passed away before the insurance could switch her from “skilled” care (which Medicare pays for and requires a chance you get better) to “custodial” care (which Medicare does not pay for, and is what most people in nursing homes need).
My mom decided to buy LTC insurance. She is spending a bit more on her policy because it has a rider that says if she never uses it, a portion of the money will be refunded to her heirs.
While we are in our 30s now, I don’t have LTC coverage. But you can bet in 15-20 years, I’ll be looking to get some. Having seen how expensive it is first hand, I don’t ever want my family to have the financial discussions C and I were having to have regarding his mom.
My mom did talk talk to me about this kind of plan but turns out that she loved to be with her grandchildren, so she’s staying with us since my dad past away. It was a good thing to consider but if the elders have family’s that will accept them, much better.
While I like the idea of staying with relatives, Cynthia, I also love the idea of the relative making that decision. Deciding to lean on family members without their approval isn’t appropriate planning.
Great article. It was interesting that the wealthy figured it was a better economic result to buy this insurance even though the could self insure. As far as the talking part, as an estate planning attorney difficult and sensitive issues need to be explored. The point to be made here is that this discussion of long term care is just part of the overall discussion about estate planning and getting wills, trusts, durable power of attorney, living wills, coordination of beneficiary designations in order. There is a whole area of concern that people just ignore. As someone who deals in estate administration I see all the time the disaster of lack of planning or bad planning and documentation and lack of attention to details. Your readers should focus on not only long term care but real and comprehensive estate planning. I have free articles at my blog and website for those who want further insight but I will not provide links so as not to be seen as spamming.