Let's Talk Money, Money, Money

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As Abba puts it: “I work all night, I work all day, to pay the bills I have to pay … In my dreams I have a plan.”

Do your clients have a plan for long term care? Or is failing to plan their plan?

Let’s look at the numbers of long term care insurance. Say your clients Marge and Don live in Philadelphia, Pennsylvania. They are 50 and 55, respectively.

As their advisor, you talk with Marge and Don about their plan for managing the costs of long term care if one or both should need it. The cost of a private room in a nursing home in their area is nearly $300 per day (more than $100,000 per year). In 30 years, the cost of three years of long term care (the average duration) in their area is expected to be $782,742 (the national average is $700,000). To cover these costs, you review their options with them:

Self-insure:
- Each saves $12,481 per year
- Earning 4% interest
- Amount saved in 30 years: $700,000 each
Purchase individual LTCi policies:
- Combined annual premium: $5,929.71 ($6,552 saved each year)
- Pool of benefits in 30 years: $760,000 each (plus $367,469 saved = $1,127,469)
Purchase a shared care policy (where benefits are pooled, allowing Marge to access Don’s benefits and vice versa):
- Annual premium: $6,877.76 ($5,603 saved each year)
- Pool of benefits in 30 years: $760,000 each (plus $314,300 saved = $1,074,300)

Self-insuring sounds like a great option, since it allows them to use those funds for other things. But what if they lack the discipline to save $1,000 a month? And what if they do just that … use the funds for other things, and then when they need them for long term care expenses they’ve dwindled to next to nothing? And what if they need long term care before accumulating 30 years’ worth of savings?

Let’s assume Marge will end up needing care in 15 years and Don is not healthy enough to provide her round-the-clock care. Her total savings after 15 years would be just $249,914. Yet the anticipated cost of three years of long term care in their area is expected to be $502,413. That’s quite a shortfall. Where will the difference come from? With either LTCi policy above, her total available pool of benefits would be $488,000. Which situation is more appealing to you for your clients … and to them?

Your clients may balk about paying $4,000-$6,000 a year for long term care insurance, but advisors tell us that -- when they take a good look at the numbers -- they realize they are at risk for much more than that.

So next time you meet with your clients, ask them if they think they need long term care insurance. If their answer is no or uncertain, ask them:

How do you see your ending years?
Do you have assets excluding your home that are at risk?
Has anyone in your family ever needed long term care, whether by a family member or professional caregiver?
Would taking care of you be an emotional or physical hardship for your spouse/partner/children?
If your spouse/partner needed long term care, would you be able to provide it now and when you are older without sacrificing your own health?
Would the people caring for you be able to maintain the quality of their own lives?
The money question: Can you afford to use your savings or retirement income to pay for the rising costs of long term care?

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