The Conversation You Should Be Having With Your Parents

June 29, 2015

If you are part of the sandwich generation, you are stuck between the responsibilities of raising your own children and the possibility of having to care for aging parents. It’s great that increasing longevity has allowed our parents to live longer and remain an active part of our extended family, but with the longevity comes the probability that they will need assistance in their declining years. For many of us this means that we will likely have to look after both children and parents at the same time. One way to ease the financial burden as our parents require more assistance is through long-term care insurance.

What is long-term care?

Once people reach the stage in life where they need assistance with daily activities through natural aging, disability, or loss of cognitive abilities, they will need to get help from home health care, respite care, hospice care, or adult day care. The assistance can be hands-on assistance or stand-by assistance to help them manage their daily activities. This personal care is in addition to the medical care that they receive and is provided by skilled professionals either in-home or at an assisted living facility. The cost of this care is not covered by medical insurance and is the individual’s responsibility.

What does long-term care cost?

The cost of long-term care can be huge. It can drain personal savings very quickly and if families decide to share the costs, it can be a significant monthly expense. Nationally, the costs can run between $17,904 and $80,300 per year depending upon the level of care. Here’s a great calculator to estimate the cost of care in Colorado.

What are the chances that you will need it?

Most of us know someone who is need of assistance for their personal care and more often friends and families are being asked to help someone in need. About 70% of people over 65 are expected to need some form of care in their lifetime. Of those over age 65, about 35% will require nursing home care.  At some point you may be called upon to look after your aging parents. If they have provided for themselves with a long-term care policy then it will reduce the burden on your family.

What does long-term care insurance cost?

Long-term care insurance isn't cheap by any means.  It can cost several thousand dollars per year and will be dependent upon their age, general health, the amount and length of the coverage, and several other factors that are written into the policy. Financial planners suggest that you should not spend more than 7% of your income on this product or the costs will exceed the benefits. Generally, the extremely high cost is offset by the benefit. If the insurance offsets costs up to $200 per day in expenses, a year of benefits would pay back $73,000.

Who should buy it?

The people who are most likely to benefit from this insurance are middle income. The extremely rich can afford to self-insure -- they have personal wealth that will be enough to cover years of long-term care expenses without denting their fortunes. On the other side of the coin, financial planners suggest that families with a net worth of less than $250,000 would pay too much for this insurance. Families with low levels of savings would be better off spending down their personal savings and qualifying for Medicaid assistance. People who have accumulated a nice nest egg and don’t want it eroded by health care costs are most likely to benefit.

Are there other ways to pay for long-term care?

Long-term care insurance is not the only solution to meeting the costs. If you have a large amount of equity in the family home, then a reverse mortgage could provide the cash. Annuities and cash values in life insurance policies can be a source of funds and certain trusts can be created in order to fund long-term care costs.

Where can you get more information on long-term care?

There are several good sources of independent information and several insurance companies are providing excellent calculators to project expenses. The National Association of Insurance Commissioners has a Shopper’s Guide to Lon-Term Care Insurance. The fed’s Administration for Aging has a useful site.

You may not be the person who needs this insurance today, but most likely your parents should consider it. Besides reducing the financial burden on their savings, it could benefit you too.