A Pragmatic Response to the Need for Long Term Care Coverage

Kurt is a 64-year-old widower. Comfortably retired, he likes to go the gym and play a lot of golf. His financial advisor is confident Kurt’s financial situation, while not unlimited, will allow him to do that for the rest of his life. Except for one thing; Kurt doesn’t have enough resources to protect him from the additional expenses he would incur if he needs help as he ages.

Problem

Kurt had been successfully resisting that conversation with his advisor for several years. He felt he had two very good reasons to do so. First, he continues to be blessed with excellent health, with a family history of extraordinary longevity. (According to him, there was one aunt who suffered from dementia prior to her passing. Everyone else seemed to be just fine until they died in their sleep sometime in their 90’s.)

Secondly, he didn’t want to pay the premium for something he didn’t think he’d be needing. And, if he never used it he’d have wasted all that money he didn’t want to pay in the first place.

That worked fine until his daughter (a medical doctor) told him to knock it off. She’s seen too many people need extra care to say definitively that her Dad was certain to beat the odds. She also didn’t want him to put her in the position of needing to consider taking care of him on a full-time basis. She said she’d rather put that energy into the ongoing care and feeding of his grandchildren. So, grudgingly, he reached back out to his financial advisor to revisit the issue.

Solution

We were brought in as team members to do cost/benefit reviews of the multiple choices available. What we found ultimately narrowed down to two alternatives, one of which surprised us with how comfortable Kurt was once he understood the implications. It looked like this;

  1. The cost for a traditional long-term care policy was $7,200 annually. He could afford it but didn’t want to pay it.
  2. A specially designed life insurance policy with a long-term care rider. The cost was $7,000 annually. Although the length of payment wasn’t as long, the services and benefits were virtually identical to those in option 1. It did, however, come with one big advantage the first option couldn’t match; the money paid wouldn’t be lost if he didn’t use the benefit.

The Outcome

Kurt’s 75 now. He still plays golf regularly and hasn’t needed to use the Long Term Care Benefit. He’s sent the insurance company a total of $77,000. To balance that out he has $85,000 of cash value built up inside the insurance policy and there’s still a significant death benefit as well.

There are three options going forward; 1.) If he needs long term care the insurance company will be paying first-with their dollars. 2.)  If he needed cash (he doesn’t, but if he did…) he owns an asset currently valued at $85,000.  3.) If neither of those options are used, at his passing his beneficiary will receive significantly more than the $85,000 in a tax-free death benefit.

No matter what happens, Kurt is protected and didn’t waste his money.


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