You’re as young as you feel—but don’t forget care insurance
Greg and Della Dell are part of the sandwich generation—the midlife adults wedged between aging parents and adult children and grandchildren.
The Westminster, Md., farm couple cared for Della’s father in their home when he fell ill. Upon his passing, an apartment was built onto their farm home for her mother, Nora Lee Armacost. Greg’s parents, Donald and Leona Dell, both in their 80s, are in excellent health and live less than a mile away. Children and grandchildren pass in and out of their spacious farmhouse as if it were their own.
With all their extended family to care for and worry about, it has never really crossed Greg and Della’s minds to contemplate their needs for aged care. "It’s hard to believe we are in a stage of life that we even have to think about it," Della admits. "I’m not sure I want to think about it."
Kevin Spafford, Farm Journal succession planning expert, says it is not unusual for people to want to avoid the topic of long-term care. "However, it is a critical part of succession planning and can be an important part of protecting the farm as an asset," he says.
"Farm families, because of their long history of caring for their families, often neglect the topic. But it’s important to keep in mind that the social structure of farm families is changing. Children are more geographically dispersed, and two-income families can’t always accommodate the responsibilities of caring for an aging parent."
The Dells have been participating in a Farm Journal Legacy Project case study. The prospects of long-term care insurance were explored early in the succession process as part of the Dells’ overall financial management plan.
Josh Sylvester, a Certified Financial Planner and member of the Legacy Project team, explains that one of the major benefits of long-term care insurance is that assets, such as land, machinery and other investments, will not have to be liquidated to pay nursing home costs or be spent down to achieve Medicaid eligibility.
"Long-term insurance is designed to take the burden off the spouse and/or children to fund the cost of care and transfers the cost of the care to the insurance carrier."
Sylvester notes that the cost of insurance is the biggest stumbling block. The Dells flinched when faced with estimated premiums exceeding $6,000 per year (level pay option), based on a $200 per day benefit (the average cost of care in Maryland).
That figure looks more reasonable when compared to what it would cost them to self-insure for care, Sylvester says. "To match that same benefit, they would have to invest $275,000 today and average a 6% growth rate. Or they would need to set up an annual program and invest $22,678 per year, growing at 6%, to match the benefit of long-term care insurance."
The Dells have an added benefit in that they have a C corporation. "Long-term care is the only executive benefit for which the C corporation can deduct 100% of the premium and the premium will be nontaxable to the employee/owner," Sylvester says. "This significantly reduces the cost on a net after-tax basis." In the Dells’ case, the approximate net cost of long-term care insurance would be slightly more than $4,000 per year, based on a level pay option.