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.
by: Michael Aloi, CFP® October 29, 2020
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.
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