Heather, my client called me and I immediately knew there was something wrong. Her voice was usually upbeat but this time she was trembling. She said that her father had suffered a stroke. He couldn’t talk, thought clearly and was unable move like before. Heather was aware that the roles were reversed and she would now be caring for her father. Heather and Tom, both in their 40s and working full-time, are parents to three young girls. It was impossible for them to do it all alone. They needed help.
Heather’s father was poor and lived on Social Security. They couldn’t afford to pay for long-term care and Medicare doesn’t cover it. Medicaid was their only choice. Tom and Heather worked for several months with the government to get her father approved for Medicaid. This was just the beginning.
They were quickly disappointed to discover that their options for long-term care facilities were limited as he was a Medicaid patient. According to the facility manager, they do not have any Medicaid beds. This is unfortunately the case. Their second option was also full. Their disappointment was compounded when they discovered that the nearest facility to them was 63.5 miles away. They had no choice but to go. They couldn’t afford it so they took what Medicaid offered.
Heather’s father is doing much better, fortunately. Heather shared with me what she had learned from this experience. She said that it helped her to think about her future. She stated that she wanted to plan now and not “rely on government for her long-term care.” However, she also said that she didn’t want her children to help her. She wanted to hear from others.
How to plan long-term care
Heather and I discussed several long-term planning options. (To see more about the options, please refer to How To Afford Long-Term care. Heather is young, healthy and has more options than people who have lost their health or are in worse shape. We talked about self-insuring — putting money away in a Health Savings Account or a designated stock portfolio to cover future long-term care costs. That idea was very appealing to her.
Long-term care insurance was also an option. Long-term care insurance that you pay annually is not the best fit for her because she was concerned about the possibility of the company raising premiums. Heather, who is younger than most, is aware of this concern. She could see her premium rates rise over her lifetime, depending on when she requires the coverage.
Optional life and long-term insurance
Heather was a mother to a young family with a mortgage. I asked Heather her opinion on combining the benefits of life and long-term care insurance. I explained that whole life insurance is the Swiss Army Knife of financial planning tools, able to achieve multiple objectives with one product. Whole life provides protection for her family and long-term life insurance. A cash value account is another option where part of her premium can be invested by the insurance company, and can grow.
The long-term care rider is what really matters. The long-term-care rider, which costs only a fraction of an annual premium allows policy owners to accelerate the payment a portion their policy’s death benefit to cover long-term healthcare services. The rider offers long-term coverage for facility and home care.
Benefits of a whole-life policy that includes a long-term care rider
Heather and Tom loved the idea of having life insurance combined with long-term care. The whole life offers long-term protection for their family, as well as a savings account for if they are in need.
The long-term care rider is equally important. The rider is a reliable source for funds to pay long-term care expenses regardless of fluctuations in the stock or bond markets. They also have more freedom than Medicaid to choose a facility.
Before you buy
Heather and Tom were able to understand the compromises. Each year, premiums for whole life insurance must be paid. You should ensure that you have the funds to pay the premium. It is also a good idea to shop around. You may limit your options if you only use one insurance agent. To compare costs, I often spreadsheet multiple carriers. A highly rated carrier is the best. Insurance companies are all rated on their ability to pay claims and financial strength. I recommend sticking with A+ insurance companies. On their website, you can often see the rating of an insurer. Ask your agent about the long-term care rider. Indemnity riders receive the monthly full long-term care benefit. Long-term care riders who are reimbursed for reimbursement pay the actual expenses incurred. Both have their pros and cons.
Takeaway: Let’s start the conversation about long-term care now
These stories are not unusual. They are part of the sandwich generation, middle-aged parents caring for their children. Young families are put under tremendous stress financially and emotionally. There is a silver lining. Heather was inspired to plan for her future after helping her father with his long-term care. Heather and Tom are both younger, healthier, and more productive than their parents. They have more options and more time to plan for long term care.
Young parents may feel that long-term care is far away and a lesser priority in these difficult times. But if you have young kids, you will know that time moves quickly. Young families should consider whole life insurance that includes a long-term care rider. This will allow them to achieve multiple goals in one product. Each of us have limited resources and many financial goals. It is important to think strategically about how we divide the pie.