Long-Term Care Insurance

Caught in the Middle: How Young Parents Can Plan for Long-term Care

One family’s story shows how important long-term care plans are … and how whole life insurance with a long-term care rider can help.

When my client Heather called, I knew something was wrong. Usually upbeat, this time her voice trembled. She told me her father had a stroke. He was unable to talk, unable to think clearly, and unable to get around like he did before. Heather knew the roles were now reversed; she was the one who would care for her father now. Unfortunately for Heather and her husband Tom, who are in their mid-40s, working full-time and parents of three little girls, there was no way they could do it all on their own. They needed to find someone to help.

Heather’s father had little money, living only on Social Security. Medicare does not cover long-term care for more than  100 days, and they couldn’t afford to pay someone themselves. Medicaid was the only option. After several months of back and forth with government officials, Tom and Heather eventually got her father approved for Medicaid. But this was only the start.

In their search for his new home, they were soon disheartened to learn their choice of long-term care facilities was limited because he was a Medicaid paying patient. The facility manager said they did not have any more Medicaid beds available. Unfortunately, this happens. Their second choice was also full. Much to their chagrin, the only facility available to their likening was 63.5 miles away. They had to do it. They could not afford the cost on their own and they had to take what Medicaid gave them.

Fortunately, Heather’s father is doing better. Later, I asked Heather what she learned from all of this. Without hesitation, she said it made her think about her own future. She said she wanted to make plans now and didn’t want to “rely on the government for her own long-term care.” She also did not want to be dependent on her kids for help. She asked for some suggestions.

How to plan for long-term care

Heather and I went through several long-term care planning ideas. (For a deeper look at the options, please read How to Afford Long-Term Care.) Heather is young and healthy, which gives her more options than those who are older or whose health has deteriorated. We discussed self-insuring — saving money in a Health Savings Account and/or a designated stock portfolio for future long-term care expenses. She liked that idea.

We also explored long-term care insurance. Traditional long-term care insurance, where you pay per year, wasn’t a good fit because she was nervous the company could raise the premiums over time.  That is a legitimate concern, especially for someone who is younger, like Heather. Over her lifetime she could see premium rate increases by the time she needs the coverage later on in life.

Life and long-term care insurance option

Knowing Heather had a young family and a mortgage, I asked Heather what she thought if we could combine the benefits of life insurance with long-term care insurance? I explained how whole life insurance is the Swiss Army knife of financial planning tools — able to accomplish multiple objectives in one product. Foremost, whole life provides long-term life insurance protection for her and the family. There is also a cash value account where part of her premium is invested by the insurance company and can grow.

But the real kicker is the long-term care rider. For a fraction of the cost of the annual premium, the long-term care rider allows the policy owner to accelerate the payment of a portion of their policy death benefit to pay for covered long-term care services. The rider provides long-term care coverage for both home and facility care.

Benefits of a whole life policy with a long-term care rider

Heather and Tom liked the idea of combining life insurance and long-term care in one product. The whole life provides long-term death protection for their young family and a conservative savings account if they need it.

But equally important, the long-term care rider hit home for them. The rider provides a reliable source of funds for long-term care expenses, regardless of stock or bond market fluctuations. The long-term care rider also gives them more flexibility then Medicaid when choosing a facility.

What to consider before you buy

I explained to Heather and Tom the tradeoffs. Whole life insurance premiums need to be paid each year. For this reason, ensure you can afford the premium. Also, shop it around. If you use an insurance agent of one company, you may be limiting your options. I usually spreadsheet several carriers to compare the cost. I also recommend sticking with a highly rated carrier. All insurance companies are rated for their financial strength and claims paying ability. I suggest sticking with an A+ insurance company. You can usually see an insurer’s rating on their website. Finally, ask your agent how the long-term care rider works. Indemnity riders pay the full long-term care benefit monthly. Reimbursement long-term care riders pay actual expenses incurred. There are pros and cons to both.

The takeaway: Start the long-term care conversation now

Stories like Heather and Tom’s are not uncommon. They are in the sandwich generation —  middle-age parents caring for their kids and their parents. This puts a tremendous strain, emotionally and financially, on young families. However, there is a silver lining. In helping her father navigate his long-term care, Heather got motivated to plan for her own future. While Heather and Tom are younger, healthy and working, they have more options and more time on their side to plan for long-term care.

For young parents, long-term care may seem like a long way off, and probably a lower priority given these troubling times we are in. However, if you have young children, you know time goes by fast. My suggestion for young families, consider looking at whole life insurance with a long-term care rider to accomplish multiple objectives in one product. We all have limited dollars, and multiple financial goals. We need to be smart about divvying up the pie. 

About the Author

Michael Aloi, CFP®

CFP®, Summit Financial, LLC

Michael Aloi is a CERTIFIED FINANCIAL PLANNER™ Practitioner and Accredited Wealth Management Advisor℠ with Summit Financial, LLC.  With 21 years of experience, Michael specializes in working with executives, professionals and retirees. Since he joined Summit Financial, LLC, Michael has built a process that emphasizes the integration of various facets of financial planning. Supported by a team of in-house estate and income tax specialists, Michael offers his clients coordinated solutions to scattered problems.

Investment advisory and financial planning services are offered through Summit Financial LLC, an SEC Registered Investment Adviser, 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600 Fax. 973-285-3666. This material is for your information and guidance and is not intended as legal or tax advice. Clients should make all decisions regarding the tax and legal implications of their investments and plans after consulting with their independent tax or legal advisers. Individual investor portfolios must be constructed based on the individual’s financial resources, investment goals, risk tolerance, investment time horizon, tax situation and other relevant factors. Past performance is not a guarantee of future results. The views and opinions expressed in this article are solely those of the author and should not be attributed to Summit Financial LLC. Links to third-party websites are provided for your convenience and informational purposes only. Summit is not responsible for the information contained on third-party websites. The Summit financial planning design team admitted attorneys and/or CPAs, who act exclusively in a non-representative capacity with respect to Summit’s clients. Neither they nor Summit provide tax or legal advice to clients.  Any tax statements contained herein were not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state or local taxes.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
The 12 Best Tech Stocks to Buy for 2022
tech stocks

The 12 Best Tech Stocks to Buy for 2022

The best tech-sector picks for the year to come include plays on some of the most exciting emergent technologies, as well as several old-guard mega-ca…
January 3, 2022
Can AI Beat the Market? 10 Stocks to Watch
stocks

Can AI Beat the Market? 10 Stocks to Watch

An artificial intelligence (AI) system identifying high-potential equities has been sharp in the past. Here are its 10 top stocks to watch over the ne…
January 14, 2022

Recommended

What to Expect When You Hire a Lawyer
personal finance

What to Expect When You Hire a Lawyer

If you’ve never worked with an attorney, you might not understand all the intricacies of the agreement you’re entering in. Here are some of the basics…
January 18, 2022
Why Women Need to Take a More Active Role in Their Financial Futures
Women & Money

Why Women Need to Take a More Active Role in Their Financial Futures

It’s a mistake to let someone else make all your decisions or take care of everything for you. You can start taking control of your finances by review…
January 17, 2022
What Assets Should Be Included in Your Trust?
estate planning

What Assets Should Be Included in Your Trust?

A revocable living trust is a great tool to help your assets pass smoothly to your beneficiaries, and it can significantly reduce the headaches of pr…
January 16, 2022
Public Defender or Private Attorney: Which Should You Use?
personal finance

Public Defender or Private Attorney: Which Should You Use?

Words of advice from two attorneys about one of the most important decisions you might make.
January 15, 2022