BERLIN – Any parent knows that self-sacrifice is a big part of the job. Whether your kids are toddlers or well into adulthood, you reflexively put their needs before yours.
As you reach a certain stage in life, however, their needs and yours have a way of converging — in the matter of long-term care, for instance. Making certain that your future care is addressed in the present not only allows you to pass your wealth on to future generations but also gives your children the gift of your physical and financial independence.
John H. Campbell, Vice President, Merrill Lynch Wealth Management, and Insurance Specialist, in Chicago, cites the example of a man he knows who died at 78, leaving a widow and two sons in their mid-40s along with a nest egg of $1.7 million to supplement his Social Security benefits and pension income. The man and his wife, who was 73, had not adjusted their portfolio to protect each other or their children.
After her husband’s death, the pension and benefits were reduced, so the widow experienced a drop in income. She had to dig deep into savings to maintain her lifestyle. When the market dipped, her finances took a huge hit — just when her long-term-care needs became crucial and expensive.
Campbell notes that a long-term-care insurance policy would have covered the surviving spouse’s medical needs, while a life insurance policy could have protected and secured the couple’s estate plan. For instance, at age 65 they could have made use of a relatively new option: a single-premium life insurance policy with a long-term-care rider. For an up-front single-premium outlay of $100,000, a 65-year-old spouse can buy almost $500,000 worth of benefits under the rider. If the spouse never uses the long-term-care benefit, this type of policy would pay approximately $166,000 worth of death benefit, free of income taxes, to beneficiaries. And the spouse can get the original premium outlay back if at any time he or she decides that the coverage is no longer needed or desired. Even for those who can afford to pay for long-term care out of their own pockets or who are considering “self-insuring,” this type of insurance is an effective way to leverage assets while preparing for unknown contingencies, Campbell says.
If you’re concerned about loss of income — an issue of particular importance to couples with one wage earner — you’ve likely already looked at traditional single-policy life insurance. It can be an effective way of plugging the earnings gap. Two other options are also worth considering. One, a first-to-die policy, pays out a death benefit no matter which spouse dies first.
Another option is a second-to-die policy, which pays out after the death of the second party.
Annuities can also play an important role in a well-designed retirement and wealth-management strategy, particularly if they provide certain optional contractual guarantees, typically available for an additional cost, that lock in gains in the contract and enhance lifetime principal and income benefits over time.
By developing and executing a sensible long-term-care protection strategy as part of your overall retirement and estate planning, you can achieve a greater degree of comfort, both physical and financial, in your later years while also tending to the needs of your family.
(The writer is a Merrill Lynch Senior Financial Advisor. She can be reached at 410-213-9084.)