The Case For Insuring Parents And Loved Ones

By Tomas McFie

The cost of care provided to parents by their adult children is now estimated to be well over $375 billion a year, twice as much as what is actually being spent on home health care or nursing home services combined), according to the National Alliance for Caregiving and Evercare.

It is crucial that these adult children should be able to recoup at least some of the costs they absorb. In the U.S., 65 million people - nearly three out of every 10 people - provide care for chronically ill, disabled or aged members of their family. On average, they spend 20 hours per week doing so, but 13% of these family caregivers provide 40 or more hours of care per week.

This issue has become so endemic that it has hindered the ability of many Americans to save properly for their own retirement. As a result, these family caregivers have a median of only $68,000 saved in their retirement accounts, a Transamerica study found.

In addition, nearly $3 billion is lost annually to theft and financial fraud, which is directly linked to hired caregivers. This lost capital, had it not been stolen or confiscated through fraud, could have helped to offset the expenses that family caregivers are forced to absorb.

Personally, we fund caregiving expenses of parents on both sides of our family. We spend more than 31% of our net income for the support of our parents. We are fortunate that we were able to take over the ownership of a couple of life insurance policies when our parents ran out of the money necessary to keep funding those policies themselves. This puts us in a position to recover some of the expenses that we currently cover. But other Americans providing this kind of care are not so fortunate.

Current life insurance underwriting guidelines make it very difficult, or impossible, for an adult child to own a policy on their parents. As the major purpose of all life insurance is to provide financial protection for those who need it when someone dies, this puzzles me. Employers can currently purchase key person life insurance on a key employee for the purpose of offsetting the cost of that employee’s death or termination as well as the associated costs of finding a replacement for that key employee should they leave the company. So it seems logical that an adult child providing care for their parent or loved ones should be able to purchase life insurance on them to offset the cost of that care, the caregiver’s lost wages and the theft of capital that would have helped offset these additional expenses.

Obviously, the parents or loved ones would have to meet current underwriting guidelines to qualify for insurance. But once those risks are accessed and the parents are deemed insurable, why should the adult child not be allowed to be the owner/payor on such a policy so that they can position themselves to recover a portion of these additional costs they’ve assumed?

Why should an adult child be forced to spend down their own retirement savings or give up their own ability to earn a fair wage simply because they have become the caregiver for parents or loved ones?

Why should an adult child be forced to pay for their parents’ care at the expense of financially taking care of their own dependent children?

Life insurance, properly issued and placed on this ever-increasing population requiring financial assistance, would be a great step in the right direction in rectifying the financial catastrophe that is escalating in this country. With more and more people requiring financial assistance from family members, life insurance could help avoid this financial calamity that is eroding, and will continue to erode, the savings of millions of American families, if not addressed.

By re-evaluating the current restrictions placed on issuing such policies, insurers could proactively prevent this economic disaster by using current data and designing a policy specifically for this purpose. Such a policy would be much like a key person life insurance policy. It would be feasible as well as profitable for the insurer as well as provide the economic relief that is so necessary for those in our society who are stepping up to the plate and providing the financial resources for their parents and loved ones - even though it puts them and future generations at greater financial risk.

Dr. Tomas P. McFie is the founder of Life Benefits and author of multiple books, including Retirement Curveball. He may be contacted at [email protected].