Long-term care insurance makes a great birthday gift

Looking for something different to give to your mom or dad for their next birthday? How about long-term care insurance?

Don’t laugh. If they don’t have it already, this will undoubtedly be the most meaningful and memorable gift you give to your parents and you — even if your mom or dad never uses it.

The absence of an extended care plan is a major void in many pre-retiree and retiree’s retirement income plans. This is evidenced by the fact that more than 90% of participants in a 2010 Age Wave/Harris Interactive survey sponsored by Genworth hadn’t even talked about critical extended-care issues with their spouse/partner, aging parents or adult children. This was the case despite the fact that 55% of respondents reported that their greatest fear regarding an extended care illness or event was being a burden on their family.

The likelihood of needing assisted care is reinforced by the fact that people are living longer and spending up to 25 or more years in retirement. Given the widespread consensus that 70% of Americans over age 65 will need extended care at home, through adult day health care, in an assisted living facility, or in a nursing home, the lack of extended care planning is a disaster waiting to happen for many families.

In addition to age-related frailties reducing or eliminating our ability to perform various activities of daily living such as bathing, dressing, or eating, severe cognitive impairment, including Alzheimer’s, is responsible for a large and increasing percentage of extended care events. Long-term care insurance is designed to address the continuing caregiving needs and expense associated with both types of chronic conditions.

The care recipient is least impacted

Uninsured extended care situations often result in a major financial drain on care recipients and their immediate families. It isn’t unusual for lifetime savings to be significantly depleted and family expenses to be forcibly reduced. Not to mention the stress experienced by the care recipient as a result of his/her situation.

While the financial and emotional toll an extended-care event exerts on care recipients is well-known, the fact of the matter is that, one way or another, the individual will receive care. Custodial care will be provided in some setting, whether it’s in the care recipient’s home, a relative’s home, a facility, or some combination thereof.

What wasn’t widely reported until recently, and is the real reason for having an extended-care plan, is the financial, emotional, and physical impact of an extended care event on primary and secondary nonprofessional caregivers. Genworth’s “Beyond Dollars – The True Impact of Long Term Caring” research, which was initially published in 2010, did an excellent job of documenting this.

Some of the key, eye-opening findings of this groundbreaking study regarding primary caregivers included the following:

  • The average age of primary caregivers is 53, with 42% caring for a mother, 14% for a father, and 13% for a spouse.
  • 42% reported that the care recipient resided in their home for a period of three years or more.
  • The financial impact was widespread, with 83% contributing financially, 63% reporting lost income of an average of 23% of household income, 61% reducing savings by an average of 63%, 57% dipping into their own retirement funds and/or savings, 45% cutting back on their own family expenses, 40% reducing family vacations, and 29% borrowing money, taking out a reverse mortgage and/or selling their home.
  • 57% provided care for more than 16 hours each week and 31% provided care for more than 30 hours each week.
  • Over a third reported direct negative consequences to their own careers, including 44% working fewer hours, 48% lost a job, changed shifts and/or missed career opportunities, 38% incurred repeated absences from work, and 17% found themselves repeatedly late for work.
  • The impact on family and relationships included 44% experiencing an increase in stress with their spouse, 27% reported stress with siblings, 23% experienced an increase in stress with their children, 20% reported reduced time with children, and 58% reduced savings for college education.

Do you want a sibling or you to be your parents’ caregiver?

While it’s natural for adult children to want to make sure that parents receive proper care when they’re no longer able to care for themselves, do you really want to put a sibling and/or you in the role of being your parents’ primary caregiver? As demonstrated by the Genworth study, providing extended care can have a dramatic long-term negative impact on you and your relationship with your parents as well as with all of your family members — caregivers and non-caregivers alike.

If your parents haven’t discussed their extended-care plan with your siblings and you, I would recommend taking the initiative to do so as soon as possible. A financial professional experienced with extended-care planning, preferably familiar with your parents’ retirement income plan, should be included early in the process. In addition to assisting in the design of a written extended-care plan, the individual can act as an emotionally-detached third-party buffer between all family members.

Annual commitment

Although couples discounts are often available and the benefit amount, benefit period, inflation protection, and other parameters can be customized and fine-tuned to meet one’s needs, long-term care insurance may not be an affordable option for your parents. Their age, overall health, and financial situation may make it difficult, or prohibitive, to pay the required premium. This is where the birthday gift comes in, assuming that one or both of them are insurable.

Since long-term care insurance premiums, like other insurance, require annual payments to keep the policy in force, annual gifting to your parents will be required. The amount of your gift will depend upon the amount of the premium that your parents can absorb. The responsibility to maintain this commitment for the remaining duration of your parent’s life, with potential relief when care is needed, can, and should be, shared by siblings whenever possible, reducing the financial burden on each child.

Beware of filial support laws

If your parents have limited financial resources and you’re not inclined to bestow upon them an annual birthday gift of payment of long-term care insurance premiums, you might want to think twice assuming they’re insurable. As discussed in Protecting Mom, protects you, you can be held financially responsible for your parent’s nursing home and other long-term care bills if they live in one of 30 states with filial support laws.

The gift that keeps on giving

Talk about a gift that keeps on giving. When you pay your parents’ long-term care insurance premiums, in addition to eliminating their fear regarding an extended care illness or event being a burden on you and other family members, you’re giving yourself and your entire family a lifetime gift.

This occurs through the peace of mind you will experience knowing that you’re putting a plan in place to maintain the financial, emotional, and physical well-being and day-to-day routine of each family member in the event that one, or both, of your parents require extended care. You can’t buy this at Bloomingdales or Nordstrom!

By Robert Klein

Robert Klein, CPA, PFS, CFP®, RICP®, CLTC® is the founder and president of Retirement Income Center in Newport Beach, California. Bob is also the sole proprietor of Robert Klein, CPA. Bob applies his unique background, experience, expertise, and specialization in tax-sensitive retirement income planning strategies to optimize the longevity of his clients’ after-tax retirement income and assets. He does this as an independent financial advisor using customized holistic planning solutions based on each client’s needs and personality.