How to Guarantee a Lifetime of Long Term Care Benefits for Half the Cost

By Robert D. Cavanaugh, CLU Published 02/16/2007 | Finance

Heres how to make sure your long term care is taken care of for the rest of your life, guarantee that you will never run out of money and not disinherit your kids.

A tall order, you say. Yes, but in certain situations all three of these can have a happy ending. Heres a more than typical scenario

Ruth is 88. She has been diagnosed with moderate Alzheimers. Other than that, she is in pretty good health for an 88 year old. Her doctor tells her shell live to 100.

Ruth has two children. Ben is an attorney and lives way across the country. Ruth has been living with Karen, her daughter, and Karens husband and three grandchildren.

Ben has already set up the paperwork and has power of attorney over his moms affairs. He has been handling her finances for the last couple of years from afar and that has worked out fine.

Ruth has become more forgetful recently and that has become more of a concern for Karen. On top of that, Karen just got a promotion that will entail her traveling out of town one or two days a week. She doesnt feel it is right to shift the rising care needs of her mom to her husband while she is gone.

Bottom line: Everyone feels it would be better to move Ruth into a health care facility where she can be effectively cared for. Even Ruth agrees as the last thing she wants to do is be a burden on her family.

So Ben puts a pencil to Ruths financial situation. Heres what he comes up with

Ruth has about 450,000 of assets. Most of it came from the sale of her home which she lived in for 45 years. She has 800 a month coming in from Social Security and 1,200 a month from the telephone company pension where she was an operator for 35 years.

Karen has found the ideal care facility for her mom. It is close to their home and it provides all the care Ruth would ever need for the rest of her life. The problem is that it cost 5,000 a month. So she is short to the tune of 3,000 a month.

But the problem goes deeper than that.

Even though Ruth has assets totally 450,000, its possible that she could eventually exhaust these funds. After all, other than Alzheimers, she has no major problems. What if her doctor is right and she does live to 100?

Karen and Ben love their mother and hope she lives to be 120, but these are simply the economic realities. However, there is another problem. Ruths life-long goal has been to be the one that educates her three grandchildren. Its pretty easy for her to see that dipping into her estate at the rate of 36,000 a year is not only flirting with her ability to educate the grandchildren, but it is affecting her other goal of leaving her estate to Karen and Ben.

Ben schedules an appointment with his personal financial advisor and explains the dilemma. The first thing they look at is an immediate annuity. Ruths age would give her a good rate of return. The best quote to provide the 3,000 a month short fall for as long as Ruth lives comes back at 215,000.

The good news is that Ruth could live to be as old as Methuselah and the insurance company would send her a check for three grand a month. And 36,000 a year on a 215,000 investment is a 16.7% return on the money. Second, this preserves the balance of Ruths estate for her wishes. 450,000 less 215,000 is 235,000. That should educate the grandchildren and leave a little left over for Ben and Karen.

The bad news is that is quite a chunk out of the total estate. And if Ruth falls and breaks a hip and dies next year, the insurance company keeps the 215,000. Bens financial advisor tells him there are ways to set up different types of refund arrangements with the insurance company so the whole 215,000 doesnt go down the drain, but these options cost more.

Is there a more efficient way? Maybe, read on

Insurance companies issue what are called medically underwritten annuities. Generally there is no physical exam required, but the insurance company does take a look at the persons medical history. The theory here is that people with health impairments have a life expectancy lower than the average for the entire population of people the same age. So providing the same monthly benefit can be provided with less money.

Thats exactly what happened when Bens financial advisor put in an inquiry on Ruths situation. 3,000 a month for life would take only 130,000.
So the shortage of 3,000 a month was taken care of. Ruth wont ever run out of money. Now there is 320,000 to educate the grand kids and leave the rest to Karen and Ben. Nobody gets disinherited and Karen and Ben heave a sigh of relief knowing they will never have to use their own money to provide for Ruth is she lives as long as they hope.

Robert D. Cavanaugh, CLU is a 36 year financial and estate planning veteran and author of the free newsletter, The Estate Preservation Advisor.  To subscribe and get the free video, How to Sell Your Life Insurance Policy for More Than the Cash Value, go to