Women, Planning & Longevity

The Collateral Crisis of Caring

How boomers, mostly women, are becoming the custodians of generational longevity
Can life settlements make a difference?

by Anne Long

Ms. Long is senior vice president of business development at Lighthouse Life, headquartered in Conshohocken, Pennsylvania.

The statistics are startling. According to the U.S. Census Bureau, there are currently 44 million unpaid eldercare providers in the United States, with women composing the majority. Daughters account for seven of every 10 adult children who help their older parents.

The growing number of seniors being cared for by family is creating a collateral financial crisis for the so-called “Sandwich Generation,” particularly among women. Women lose an estimated average of $324,044 in compensation due to familial caregiving, according to a study from MetLife and the National Alliance for Caregiving. This figure includes not only lost wages, but lost contributions to retirement plans and Social Security.

I experienced this situation firsthand when my 78-year-old mother was diagnosed with a terminal disease. I lived halfway across the country and was running my own business, but I quickly packed my bags and moved back home to share caregiving responsibilities with my two working sisters. In juggling my professional and caregiving duties, I stopped earning income.

My family was again faced with a similar situation when my father was in the last stages of life. He was in an assisted living facility, but he had run out of money and his last remaining assets and Social Security were being used to continue his care. Eventually, he only had the financial assistance of his adult daughters — and a small life insurance policy.

Several underlying factors are at the root of this caregiving crisis for adult children. One is the simple fact that seniors are living longer and, thus, outliving their retirement savings. Also, fewer Americans today are retiring with a pension plan compared to previous generations. Add to that the dramatic increases in the costs of healthcare and long-term care. As a result, more and more American seniors simply don’t have enough money to last for 20-30 years in retirement. The burden of financially and physically caring for the elderly increasingly falls on their adult children.

Adult caregivers today are often forced to make tough choices in saving for the future — either they fund their own retirement or help put their kids through college. The additional expense of caring for an aging parent just adds tremendous financial pressure on the Sandwich Generation to meet their own future needs.

Life Settlements

There’s no question that we didn’t, and wouldn’t, think twice about the decision to help our mom and dad — just like so many of the unpaid caregivers in America today. But, caring for our parents in their last years was financially costly to my sisters and me.

Had I known that my parents’ life insurance policy could be sold through a life settlement for immediate cash, it could have helped both of my parents – as well as me and my sisters. In a life settlement, a policyowner sells their life insurance policy rather than letting it lapse or surrendering it back to the insurance company. The policyowner can then utilize this “found money” to help pay for costs of their own care or even their loved one’s care, fund their retirement or serve whatever other purpose they choose.

Additionally, life settlements can help keep adult children (or other unpaid caregivers) from using their own savings, as well as help support them when they step away from a full-time job to become a caregiver. In my dad’s case, a life settlement would have relieved some pressure on him and my sisters by helping to provide for his continued care in assisted living.

Sensible Solution

seniors are living longer and, thus, outliving their savings. Also, fewer Americans are retiring with a pension plan compared to previous generations. Add to that the dramatic increases in the costs of healthcare and long-term care and seniors simply don’t have enough money to last for 20-30 years in retirement...

Life settlements are transacted with strong consumer protections, which have been adopted over the past decade or so and endorsed by the National Association of Insurance Commissioners (NAIC) as a way for seniors to immediately finance their long-term care costs. Congress is considering legislation that would further encourage seniors to use the proceeds from a life settlement to invest in their healthcare, including planning for long-term care.

There are many reasons why a policyowner may choose to sell his or her life policy. First and foremost, a life settlement is an alternative to lapse or surrender of a policy. Maybe they bought the policy decades ago to provide income replacement. Or perhaps it was purchased to provide protection for children during their college years, who have since graduated. Quite often, seniors opt for a life settlement because the insurance premiums have increased considerably, and they may no longer be able to keep the policy while living on a retirement income.

Lack of awareness of life settlements is perhaps the greatest challenge, as many people don’t realize that life settlement companies pay owners an average of four or more times the policy’s cash surrender value. Furthermore, adult children are often unaware that their parents even have a policy.

Role of Advisors

Financial advisors should ask their senior clients if they own a life insurance policy — if they don’t already know. Just like any other asset, it is useful to have the policy appraised by a life settlement company to find out if it has a market value and, if so, how much the policy is worth.

Likewise, advisors should engage their clients’ adult children to make them aware of life settlements as a possible solution for the financial challenges ahead – not only for the parents, but also for the children who will be caring for them as they age. The advisor can point out to the adult children how great an impact caring for their elderly parents can have on their lives and resources. Advisors can be a valuable source of knowledge to both seniors and their children about the importance of considering a life settlement.

Long-Term Impact

When I scaled back my business to help care for my mom, I didn’t even consider the long-term impact on my finances. It never dawned on me how the loss of income would affect my future Social Security benefits or my pension plan contributions, because I was so focused on taking care of a loved one.

The statistics show how widespread this collateral crisis has become in America and particularly how much women lose from being good daughters. The situation has been a bit of a silent crisis. There’s so much focus on resources for working parents, but not enough for workers with parents. As 10,000 Americans turn 65 every day, the problem is getting bigger, not smaller.

For these reasons, this issue needs to get much needed attention – and help. Awareness of life settlements by seniors, their children and their advisors can be a part of the solution to this growing crisis. Over the next decade, it has been estimated that $2 trillion of face amount of life insurance will lapse or be surrendered by seniors that could be eligible for a life settlement. If more people knew about life settlements, they could take advantage of this growing market and make a great difference in the lives of many older Americans and their adult children caregivers. ◊