The reward of a financial advisor
Posted January 7, 2013on:
Recently, a client of mine fell, broke his hip and ended up lying on the floor for 20 hours before he was rescued. I went to visit him in the hospital a couple of times. The good news is: he is out of immediate life-threatening danger. The bad news is: he may be wheelchair bound for the rest of his life.
When John first came to me to seek my help with his personal finance, I looked at his overall financial big picture and was pleased overall. He worked at federal and state jobs and enjoyed good pensions. On top of that, he had a decent investment account.
But there was a gaping hole in his retirement security: he was turning 70 then, was divorced, and his children lived far away. That meant if he were to get sick, nobody would be there to take care of him; he would need to hire caregivers. Right then, I insisted that he buy long-term care insurance.
According to research, 50% of seniors who are 65 and older will need long-term care at some point in their lives. The average duration of care is about three years, but about 5% of seniors need care for more than ten years.
The costs of care, depending on the type (home care, adult day care, assisted living or nursing home), could range between $20k to $100k a year. And the costs are going up about 5% a year.
John was employed then. Under my instruction, he found out that his employer offered long-term care insurance as a benefit (through an insurance carrier). The monthly premium was about $460.
John thought that was a steep price. In fact it was not – I did a back-of-envelope calculation for him. It turned out to be a very good deal. Assuming John needs three years of nursing home care, that would amount to $300k. John’s annual premium was about 12x$460 = $4600+$920 = $5520. If John paid 10 years of premiums before he needed the insurance, the total premium he would pay by then would be $55,200. You see the math?
In my opinion, the insurance was a good deal. Part of it was that it was group insurance; therefore, there must be some discount. A few months ago I read reports that many insurance carriers had mispriced the risk and charged too low a premium.
I did not misprice the risk, nor did I underestimate it.
I got a note recently from John’s daughter thanking me for watching out for her dad. In the note, she said her dad spoke very highly of me. That’s the reward of being a financial advisor: helping my clients financially prepare for the unforeseen and getting recognition and appreciation for what I do for them.
Get my white paper: The Informed Investor: 5 Key Concepts for Financial Success.