I wouldn’t worry a lot about long term care insurance. There is a definite “sweet spot” for this type of sale (too many assets not to protect, but not enough to self-insure), and it sounds like your mother doesn’t fall into this category. She is low income, and I’m making the assumption – correct me if I’m wrong – that she is also “low asset”. If that’s the case, the nursing home will take what she has, and she will then qualify for Medicaid.

I think you’re contradicting yourself a bit there. You say there’s a good chance a 65 year old will make it to 90, but then go on to say that it’s guaranteed that the policy will be paid. Remember that a policy only gets paid if the person dies while the policy is in place. So if you’re saying they get a 25 year policy and there’s a good chance she lives to 90, what about 91.

If she lives to 91 then by that time the policy has expired, and when it expires it is worth nothing. So you aren’t guaranteed money remember, it’s all or nothing. In my opinion it’s a bigger risk than the 401(k), because of that. And of course if someone is sick and you think “well of course she’ll die before then” the insurance company knows that as well and your rate will be very high.

Let’s assume parents have kids at 30 just because it’s easy and a round number. Then I would assume that in today’s world there’s a really good chance that a 65 year old could make it to 90. If she’s 65 then it’s 25 years.

Now, you have an investment opportunity. It is a guaranteed sum of money to be paid out to you in 25 years. You are going to contribute to it consistently on a monthly basis much like your 401k. Except this money will not be subject to market fluctuations. In face, you can’t loose money. You will give up some gains in order to get this benefit. You also will be able to get this money completely tax free. No rules, stipulations or taxes on this money. I would prefer that over a 401k, wouldn’t you?

When set up properly this account start off high and grow gradually. If things go bad you’ll have access to the monies but if you don’t access it you will be able to enjoy the benefits above. Regardless of what this account is would you do it financially?

To all contributors, thank you for your sound advice. God bless you all and keep making good financial decisions based on our Lord’s principles.

Just my thoughts

I did some math. I went to Zander Insurance (zanderins.com) and found what it would cost to get a 20 year policy for a 65 year old woman. For 100k worth of coverage it would cost 1535 a year, I assumed there were three of you (just a guess) so I called it 500 per child per year, with each child receiving roughly 33k on your mother’s death.

Then I went to Dave Ramsey’s website and used a financial calculator to see what 500/year invested at 10% would be, and in 20 years it would actually be about 33k. So financially it breaks down to a point where if she lives less than 20 years you make out better with the life insurance, if she lives close to 20 years you about break even that way, but if she lives even a day past the policy you end up with nothing.

So with that being said I wouldn’t do it. First off I never want to be in a position to say “if mom doesn’t die this year I’m out 10k”, that’s creepy. If I’m making an investment I’d like it to be an investment, not a gamble on someone’s life. If you just invest the money you guarantee there will be something there. Also, you made it sound like she’s going to be throwing money into this herself, again if she wants to leave money to the family she would be better off just investing it. I think you should do what others have said and get her long term care insurance, so the money she currently has does not wind up going to pay for her long term care.

I agree with DARREN about the purpose of life insurance. That is to protect a persons dependents from financial difficulties when they die. It doesn’t sound to me like any of the children in this case are dependent upon their Mother. She would only need enough insurance coverage to cover any costs associated with her death. These costs could be anywhere from $10,000-$30,000 depending on circumstances (or more).

Instead, why not pay for those post-death expenses now. Many funeral homes have pre-paid packages with monthly payments. While it sounds morbid, think of the advantages. It allows the “dying” person to make their own decisions about their post-death care. Whether they want to be cremated or buried, which coffin they want, which burial plot they want, etc. Knowing that their loved one got the exact care they wanted is a wonderful gift to give your grieving family during a very stressful time.

If that is to emotionally difficult to do at the time, such decisions should still be talked about so that the persons wishes are known. Then another helpful route to take is long term care insurance. But that could end up to be a waste of money if the person died before needing the long term care.

Anything other than that is predatory and morally wrong.
I hope that helps.