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Phyllis Shelton’s Response to Common Bad Advice from Financial Columnists

If you set the preferences on Google to send you all the articles on long-term care insurance published each day as I have, you know there is a ton of them! I don’t respond to most of them for lack of time anymore, but every now and then, I must respond.  This particular bad advice is common among the “financial experts” who have their own columns in our nation’s newspapers, so I’m posting it on my website in hopes that many of you can benefit from it with your clients and prospects. Here’s the bad advice:

Arizona Business Gazette, August 9, 2007


“As far as long-term care, or nursing-home insurance, is concerned, it's an insurance decision that is tougher than most. The premiums are costly for a good policy. If you remain healthy into or past your mid-80s, you could pump more than $100,000 into such a policy. If, on the other hand, you end up in a nursing home for years on end, your policy probably would pay for itself.

If you have family members who would care for you in the event of a major illness, or if you don't mind depleting retirement assets and then relying on state Medicaid coverage to pay for nursing-home costs, I recommend that you bypass long-term-care insurance.”

Reach Eric Tyson, author of "Mind Over Money" and "Investing for Dummies" at eric@erictyson.com.


And here is my response on August 14, 2007:

Hi Eric - you just gave your reader very bad advice.  You said she would need to stay years on end in a nursing home to recover the premium she paid in by her 90s if it had accumulated to $100,000.  Here are three reasons why I say that:

1) If she buys a monthly benefit of $5,000 at age 50 with the 5% compound inflation factor, it will be worth $20,000 a month in 30 years by age 80 and $32,500 a month by age 90.  Now you can quickly see that having care only five months at age 80 and only 3 months at age 90 would pay back her $100,000 in premium.  However, the married rate for such a plan that would pay benefits for five years is about $2,250 which is about $67,500 for 30 years and $90,000 for 40 years as you thought, but at age 80, the plan is worth $1,200,000 ($20,000 x 60 months) and at age 90, $1,950,000.  And yes, there can be a class rate increase on the premium - many companies have never had one, but in the future, the rates can go up by class.  Even so, the payback eclipses the premium at those ages, and the premium stops when one accesses benefits.

Could she invest the $2,250 annual premium? Of course - if she is disciplined enough to do so.  After 30 years, she would accumulate $227,415 and $480,622 by age 90 if she averages a 7% return. That would be before taxes and investment fees of course, and still much less than the amount of benefits in this policy.  But what if she has a stroke at age 60 and could only invest for ten years? Her policy would be worth about $8000 a month at that point, for a total of $480,000 in her benefit pool, which will grow each year due to the 5% inflation benefit she purchased. Her savings after ten years would be less than $35,000.

2) You made the reference to her being in a nursing home, when long-term care insurance may be the only thing that keeps people out of a nursing home.  Policies are available today that pay cash to the family so they can use the money anyway it is needed and that of course includes paying family members and friends or anyone they like to provide their care. The premium I quoted above is for such a policy.

3) You told her to consider if she has a family member who would take care of her - how in the world can she know that? I am the primary caregiver for an 84 year old aunt who was supposed to be taken care of by one cousin who died at 54 with lung cancer and another one who had a massive stroke at age 61 and has been paralyzed in a nursing home for 5 years. I live four hours away and if something happens to me, she has no one. A third cousin who lives in the same town as my aunt was helping me but died last month at age 62 of cancer.

By discouraging people away from planning for their future with long-term care insurance, you are impacting not only their quality of life, but those of their family members who have to struggle and sacrifice their lifestyles to bear the entire burden of care, when they could have had a tremendous amount of help.

My dad worked 34 years in forestry and learned very quickly that you can't outrun a forest fire. He and his co-workers carried asbestos tents that they could jump into if a fire was coming their way.  One of them used it and it saved his life and enabled his children to continue to have a father. Saving for long-term care is like trying to outrun a forest fire.  I'd sure want protection if it came my way.

PLEASE reconsider your advice, Eric, as it will have a very detrimental effect on your readers, and I know you care about their wellbeing, or you wouldn't be investing your time writing your column. If I can ever act as a resource for you about long-term care insurance, please don't hesitate to ask me. I've been a consultant, author, and trainer for this industry since 1988 and will do anything I can to help families get help with this huge need.

Phyllis Shelton, Pres.
LTC Consultants
108 Rhoades Lane
Hendersonville, TN 37075
615-590-0306 / 888-400-1118
615-590-0307 fax

Author of Long-Term Care: Your Financial Planning Guide, LTCiPublishing, Inc., 2007

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