Today’s long-term care policies are hybrid of life insurance/care benefits

Dear Michael: We are of the age, +65, where we seem to be inundated with long-term care insurance mail, emails, and calls. Is this the age where we are supposed to be thinking about long-term care insurance?

Our parents had coverage but only one out of four ever used the policy they had. Even at that, it only paid for a small share of the total costs. We have quite a bit in savings that would pay for any care. Why would people ever waste their money on long-term care insurance? – I Don't Care About Long-Term Care

Dear I Don't Care: When I think about a person's estate plan, I think of them like building blocks. There is a cube that contains the land values. There is a cube that includes machinery and/or livestock. There is a cube that contains all your lifetime savings and other cash items, patronage dividends, etc.

From an estate planning perspective, and not being a farmer, the value of each cube is equal to its value of the estate. All these building blocks stacked upon one another is your estate. In other words, it is a representation of your life's existence, your life's work and what you left behind in the world.

The last cube is a photo of the family, your marriage, your children, and the legacy you leave behind for them. When you stack all these building blocks on top of each other we have a picture of your estate.

When we are setting up an estate plan, sometimes you arrange the cube with the farmland for the farm heir, and you take all the other building blocks and put them into the non-farming children's slot. Many times, there is not enough assets in the cash cube to offset what the farming child is receiving – mainly because there is only one of them receiving the most valuable asset – farmland – and the others have to split the cash cube two ways, three ways, five ways.

This, eventually, is what everyone's life comes down to, along with the memories of how wise and loving you were, how loved you were, what decisions you made and what decisions you did not make.

Having long-term care insurance – especially when it does not affect the value of any of your estate building blocks – seems to be a viable option.

Old-style long-term care insurance were reimbursement policies – they would pay the bills for your care up to the amount you were insured for. Some covered assisted living expenses, some did not. Most of them were so-so on the coverage, but you got what you paid for. If you died without using the coverage, it was thought to be a bad deal.

There is a new breed of long-term care policies out today that are a hybrid option of life insurance and long-term care benefits. Unlike old policies where you needed to have a bill to be paid, this hybrid coverage pays you a monthly benefit directly and you decide how you want to care for yourself – once you cannot pass two out of five Activities of Daily Living.

If you do not need any care, this block of money is returned to your savings cube to go to your children someday, along with a tax free upgrade in value.

There are two possible outcomes. Will your children say, "Gee, Dad and/or Mom made a bad deal buying this because we got our money back?" Or will they say, "Gee, I wish we had five percent more interest for three years!"

Your children are only going to know you made a bad decision if you end up costing hundreds of thousands of dollars to your estate for your care prior to death. One in four do need care – so yes, there is a 75 percent chance you won't need long-term care coverage. But do you want to risk it?

Without coverage you will not bankrupt your estate, but the estate might be a little light on funds to even up what the farming heir and the non-farming heirs receive. Your children might be angry, disappointed, and hurt that you ensured the value of your farm for the one child, but left the share for the non-farming kids uninsured.

Why would people waste their money on long-term care coverage? Perhaps it is because these people want their family to remember them as being prepared for anything.