(Dow Jones) The affluent are buying more long-term care insurance, but it's not for themselves. It's for their parents.
These clients see the costs of their parents' care as a risk to either the estate they want to inherit or to their own assets.
"In many situations, they know they'll be stuck with this as their problem," says Norm Mindel, a Chicago-based financial advisor. "If the kids are well off, they know they're on the hook for taking care of Mom and Dad."
The issue isn't a new one, but Mindel says attitudes have shifted since the recent financial crisis, with people more receptive to long-term policies as opposed to simply putting money aside or other options. Before the recession, some advisers recommended skipping the coverage if someone had at least $2 million in assets. Now, many recommend the insurance because of shrinking assets and soaring health care costs.
"I have clients with $4 [million], $5 [million], or $6 million, and I still tell them to get the policy," Mindel says.
It's no longer unusual for a high quality nursing home to charge more than $100,000 a year in a place like New York or San Francisco. Moreover, most people want to remain at home--at least as long as possible--so the cash from a long term care policy could cover many of those expenses including home health aids and renovating a home to make it wheelchair-accessible. Wealthy families often are more willing to pay for round-the-clock private nurses and on-call physicians to keep even seriously ill relatives at home. They're also capable of paying top dollar for the most expensive institutions if a nursing home becomes unavoidable.
Craig Carnick, a financial advisor in Colorado Springs, Colo., says many of the clients who want to buy the policies for their parents "have enough put aside to cover their own retirement, but they couldn't take a hit if they have to pay for their parents." He calls coverage "a risk management exercise" and says he always asks clients if they're eventually going to be responsible for someone's long-term care, which could include a parent's or a disabled child's.
F. Dennis De Stefano, a financial advisor in Maui, Hawaii, has a client who decided to purchase a plan for his parents because they didn't want their parents to ever have to liquidate a vacation home that had been in the family for generations.
The children of a relatively healthy 65-year-old couple could expect to pay about $7,000 a year in premiums for a $150-a-day benefit that lasts for life, with an adjustment for inflation that could provide $300 a day in 20 years if the cost of living doubles between now and then. Premiums also could rise over time as state regulators allow.
More affluent investors tend to buy policies that provide more coverage and that kick in immediately. The shorter the waiting or elimination period until a policy begins paying out a benefit, the higher the premium. A less expensive policy, costing say $4,500 a year, might provide a similar payout but only for a five-year period.