I have been thinking about our aging parents, how we might need to support them someday and what that might look like. Many of us may be in a similar situation so I thought I’d share my conversation with Sabrina Lowell, a financial planner at Private Ocean. We talk about long-term care insurance, financial planning avenues for taking care of parents and how to talk to your family about it. She also shares additional resources for developing an elder care plan.
Ruth Krishnan:
Hello, I am here with Sabrina Lowell. She’s with Private Ocean and she’s a financial planner, and I wanted to chat with her today about long-term care insurance, specifically regarding some financial planning avenues for taking care of parents.
How are you, Sabrina?
Sabrina Lowell:
Great. Good to be here and see you.
Ruth Krishnan:
So good to see you as well. So I have been thinking about this and I try to think about how it can can apply to others as I’m doing some research and sharing that research with my friends out there. And so I think that I’m probably not the only one who has this on their mind where I feel like my husband and I have done the best job that we can trying to do some financial planning around our own personal finances and long-term goals and all of that. And then I realized that we have this huge area that could end up affecting us, and that is our parents and of course, if something bad happened to them, we would really want to take care of them. And those costs could actually be very, very high and could end up really derailing some of the plans that we’ve set up. So I feel like it was a big error for us to not really kind of consider that section of what could be our financial responsibility for the future. So I was hoping you could help guide us through some of the things that we should be thinking about.
Sabrina Lowell:
Sure. Well, it’s certainly one that comes up with our clients and I think that there are really what I would describe as three parts to developing what I would describe as an elder care plan or some sort of a contingency plan for aging parents or family members. Oftentimes, these days, it might not just be a parent. It could be another family member, a sibling or otherwise. And I would say that the three pieces are really understanding what is the landscape and what are the options, developing a plan and then implementation if needed.
So I always start right at the top in asking clients as they’re coming on to ask who else in your life might you be responsible for? And the piece that you are touching on really is the financial side. So, that’s a really important one, but the other piece is the logistics side, and maybe we can get into some of the additional details there, but that can be anything from finding resources to be able to outsource, spending time with the aging person or individual, taking them to appointments or all the other components that go into managing what I would describe as an elder care plan.
So I think the first step is really understanding it. It’s like having an earthquake preparedness kit in the Bay Area.
Ruth Krishnan:
Yeah.
Sabrina Lowell:
It’s okay, what do we need to have on hand? Who’s going to be involved? Who’s part of this team? And then if we need to put this in place, what might that look like? So I’d say that’s the first place to start.
Ruth Krishnan:
I love that you brought that up. I mean, time is equivalent to money in a lot of ways and even for me as a business owner setting up the business in such a way that as your parents age, and there are going to be things like, do you have your business set up in a way where you can take that time or step away from your business if necessary? That’s a really good point.
Sabrina Lowell:
Well, and part of that is even just initially I think what I also will ask. Okay, so if there is someone that you’re financially responsible for, or you may be involved in their care at some point, who else is involved? Do you have siblings? Are there other family members? And then asking how open they are to having a conversation and I think this is where just getting everything out on the table and being very transparent is really helpful. Because oftentimes what I see is that different people within the family will play different roles.
So oftentimes, it’s the person who’s logistically or geographically closest might handle a lot of the on the ground logistics, whereas maybe someone else in the family has more financial means and can be the financial sort of resource that might be needed to the extent where that comes into play.
Ruth Krishnan:
That makes sense. So I know from the finance side, I know there’s obviously self funding, clearly these things can be paid for in cash. I know, I think I read somewhere that, I’m trying to remember, the average cost of a long term care facility was how much? Is it $75,000 a year or something?
Sabrina Lowell:
I would probably even say more, and here’s where it totally depends. They say that the average time for using long-term care would be somewhere in the neighborhood of between two and three years, but that doesn’t apply if someone might have dementia or Alzheimer’s where they’re in really great physical shape, but need ongoing help. And when you’re looking at that type of care, depending on where, here’s where you get into some of the conversations around, would you want to have care in your home? Would you want to be in an active living community that has a step up option, or sometimes we’ll see it on the back end where really there’s some sort of an event that necessitates somebody moving right into skilled nursing.
So I’d say here in the Bay Area, like at a minimum, when we’re looking at what this type of care might cost, you’re talking about at least $200 to $250 a day, and these types of expenses are really escalating we think at a faster rate than general inflation. So, one of the things just stepping back is as we think about, okay, what might this care plan look like, we’re really running contingency scenarios. Okay. Maybe it’s best-case, mid-case and worst-case and looking at what might some of the costs associated be.
And if you’re having 24-hour care or you’re paying for 24-hour care at home, that could be running $15,000 to $20,000 a month. And what does that look like? What is the impact as it relates to the financial, your own financial roadmap, if you’re the one who might be paying for that care on behalf of somebody else?
Ruth Krishnan:
And so what does long-term care insurance provide and what ages do you buy it? And when does it make sense and not make sense? That’s a lot of questions.
Sabrina Lowell:
Well, I think everybody should at least explore long-term care. I will say from an industry standpoint, long-term care policies are a relatively new type of policy. They’ve been around for a number of years, but why that’s relevant is because insurance companies don’t have as much experience in administering these policies. So if you bought a policy 20 years ago, it was priced much more favorably than they are today. Because what’s happened is people have purchased policies, they’ve paid into them, and then they’ve actually started using them versus letting them lapse.
And so long-term care premiums now can be really expensive. But effectively what long-term care covers is if you need assistance, and it’s usually defined as what they say is two of the six acts of daily living. So these are things like transferring, toileting, eating, bathing, etc. So if you need two or more of those particular functions, help with them, or if you have some sort of cognitive decline, dementia, or Alzheimer’s, that’s when your long-term care policy would kick in. And I think what we’re seeing just based on where pricing is these days, we really talk to clients about do you want to potentially partially insure and partially self-insure or what are those options.
Just because if you’re buying $200 or $250 a day of benefit, that might not cover or likely won’t in the Bay Area, wouldn’t cover all of the long-term care needs if you were to really need 24 hour care.
Ruth Krishnan:
Got it. And how much are we talking about for a full plan for say a 70-year-old person?
Sabrina Lowell:
This is where it totally depends. And I would say that the optimal time to start thinking about it is probably in your mid to late 50s, having some sense for what those plans might look like earlier on and beginning to look at them, but really getting serious maybe in your mid to late 50s. And then pricing begins to do almost like a hockey stick in your 60s and 70s begins to, I would say, get a little bit late. But this is where a long-term care insurance broker is a great resource just to be able to look at what are the options and what are the prices associated.
But if you’re looking for, call it $200 of benefit a day for someone who might be in their late 50s to early 60s, I mean, you could be looking at anywhere between $5,000 plus a year on premiums. And again, this industry is changing so rapidly that you really have to, based on your own circumstances, get a quote in order to see what the cost would be. And then the benefits are for a specific period of time. A lot of the prior policies would have unlimited lifetime benefits. Now, a lot of the policies will be capped at maybe a three year benefit period.
Maybe you’d have an initial period where you’re paying the deductible on the front end. So there are a lot of moving parts and pieces, but can be a real benefit if you’re looking to partially or insure that risk.
Ruth Krishnan:
And I think I had read that you can actually just buy a plan outright. So for like $150,000 or $200,000, you can just, is that right? It’s been a while since I looked at the research.
Sabrina Lowell:
Right. And this is why the industry is really evolving. They used to offer what were described as 10-pay policies. So you would pay them over a 10 year period, and then all of your premiums would be paid and you would have this benefit on the back end. I haven’t seen a 10-pay policy available in a long time. But what I do, or what we are now seeing, because long-term care as a standalone policy has been getting so expensive, sometimes what we’ll see are a life and long- term care writer, life insurance with a long-term care writer.
It’s a little bit tricky. These can be good if you have a permanent life insurance policy in place that maybe you don’t necessarily need the life insurance benefit anymore, and you can convert it into what are described as hybrid policies. But I will say that anytime one policy tries to accomplish two different goals, it probably does each of those functions pretty well, but not really well. So again, this is why looking at sort of how are policies structured and what are the options based on your health and age are so important.
Ruth Krishnan:
I see. Is it a use it or lose it type of policy or does that vary?
Sabrina Lowell:
For straight long-term care, that’s a use it or lose it. Although statistically speaking in a couple, it is likely that one of those people in the couple would have some sort of a long-term care need.
Ruth Krishnan:
It is taken on just one individual person versus a couple, correct?
Sabrina Lowell:
There are now some policies that do offer some shared benefit options as a writer, but typically it would be based on one person.
Ruth Krishnan:
Okay. So what kind of people, what’s the profile of someone who’s actually taking this out for their parents versus making a choice to self-fund?
Sabrina Lowell:
Well, I think this is where the planning aspect becomes so important, which is, I think as we’re working clients to build out their own financial roadmap to the extent that they might be responsible for somebody else, then it’s understanding if a parent, in this example, would need long-term care assistance, where might they receive that care? Is it in house or would they want to move into some sort of a community and what are the areas costs that would be associated? And then what are the current financial resources available?
So oftentimes people, even if they might not have a ton of financial resources, maybe they’re still receiving Social Security, so that does help defray that cost. Then what would the remaining cost be? And then when a child, and this example, an adult child is thinking of about, okay, now, do I buy a policy or do I self-insure, then I’d be running the numbers to say, what if there was a long-term care event and it was this particular cost that I was paying, how many years might I be paying that? And how does that impact my own financial picture?
And then ultimately running the scenario to say, what if I purchase a long-term care policy for a parent? What is the cost of that? And how does that impact my financial picture? So I would say that 10 years ago we had a number of clients that were opting into purchasing long-term care policies and more frequently now, while we review it with every single client, and it’s going to look at the costs, a lot of folks are self-insuring just, again, because the cost is so high for obtaining long term care.
Ruth Krishnan:
And based on the averages, so you said $250 a day, which I just did a quick calculation is about $63,000. What’s the average time that someone is in a, I guess, nursing home? What is the terminology?
Sabrina Lowell:
Well, and this is where it totally depends. Statistically speaking, it’s between two and three years, but for dementia and Alzheimer’s, that can last a number of years and we’ve had clients or clients’ parents move into memory care facilities where they’ve lived there 15 or 20 years. So this is where going back to scenario planning, you go best-case, mid-case, worst-case, and really looking at contingency planning to understand what are the costs that might be associated with each of those particular scenarios.
Part of it is the fear of the unknown. You don’t really know with certainty whether you or someone in your family is going to experience a long-term care event. And if so, how long will that last? And the other piece is if somebody has, for example, dementia or Alzheimer’s in their family, that would definitely be a reason to look at policy options earlier, rather than waiting.
Ruth Krishnan:
I mean, $63,000 times 10 is like $700,000 or $650,000, like that’s….
Sabrina Lowell:
And I would say that that again is a baseline. Here in the Bay Area, it’s really difficult to find communities that are providing this type of assistance for aging folks that is under, call it, $8000 to $10,000. So, that’s really, I would say, like a starting place per month.
Ruth Krishnan:
Okay. Well, that’s a little bit of depressing news for us all to think about, but these are the hard things that we have to be thinking about to make sure that we’re not caught off guard later. It sounds like the next steps would be for someone to meet with you and go over their specific financial picture and see what is best for them. Obviously, I like the piece about just kind of having a family meeting about, hey, these are the things that might be happening. Like let’s have a candid conversation about who can do what and kind of put it out on the table and kind of think through those things so people know what their role is in the situation.
Sabrina Lowell:
And especially because we’ve been talking about, again, the financial aspect, which is a really big component, but again, there’s also the time element, that’s who’s going to be taking this person to appointments or shopping on their behalf, for example. There’s also, I would say, within that support system, what I would describe as almost like the resource manager. So this is the person who might be, if you’re looking for a care facility, conducting interviews, monitoring care, managing long-term care payments, doing things like bill pay.
And again, this is where there are now a lot of different types of consultants or specialists that really work with families who have the resources to be able to help facilitate that process. I think people don’t need to do this all on their own. There are resources out there, and then there’s also just the emotional support. Because oftentimes, especially if it’s a prolonged need for an aging parent, it can be really taxing and making sure that the person who is really providing the emotional support on an ongoing basis to the aging parent, that they’re really taking care of themselves as well.
Ruth Krishnan:
Yeah. That makes sense. What else am I forgetting to ask you that I should be asking you?
Sabrina Lowell:
Well, I think that the other piece just in terms of planning for this type of event would be the important documents that might be involved. So, these would be documents like powers of attorney, both for financial matters and for medical care, a lot of institutions, financial institutions, banks, even bill pay like Comcast or otherwise, might have what are described as trusted contact forms. So make sure that if you are the person who’s going to be responsible for an aging parent, that you have the ability to access information and conduct business with those particular providers.
So those are, I would say, the two documents that are really important to make sure that are in place ahead of time while someone still has all of the ability to execute those types of documents and to get an adult child involved.
Ruth Krishnan:
Power of attorney, what was the second one?
Sabrina Lowell:
There’s two different powers of attorney, power of attorney for financial matters and then power of attorney for medical decisions, so those are two important ones. And then what would be described as maybe a trusted contact form or an information authorization form and getting that in place before someone has a need because these documents can’t necessarily be put in place once somebody is in cognitive decline.
Ruth Krishnan:
Right. I mean, obviously, then too, even just like trusts and wills and like this gets into a whole other area.
Sabrina Lowell:
That could be a whole other session.
Ruth Krishnan:
Yes. Absolutely. Well, this was super, super helpful. I really appreciate you taking the time to be here today, and I’ll make sure that when we publish this, your name and information is there. So if anybody wants to get in contact with you to do some planning around this, that they know where to find you.
Sabrina Lowell:
That’d be great. And we do have a couple of documents on our website that actually outline how to create an elder care plan, how to facilitate a conversation with family members, especially because some families talk about money and others don’t. And so how might you wade into that conversation and then also listing just some of these key documents in what we would describe as an elder care or aging parent inventory list. So those can be a resource for folks, too.
Ruth Krishnan:
Perfect. We’ll include a link to those as well in the summary, so that that’s easy for people to find. Thank you for mentioning that.
Sabrina Lowell:
All right. Good to be with you.
Ruth Krishnan:
All right. Thank you, Sabrina.
