Long Term Care Insurance: To Buy Or Not To Buy?

Did you know that your chances of living to 100 years old are now better than ever?  Living a long and fruitful life may be seen as a great gift.

However, the chances that a 65-year-old will require long term care at some point in life are 49 percent for men and 65 percent for women.  Even so, according to the Canadian Life and Health Insurance Association, 74 percent of Canadians have no financial plan in place to pay for long term care.

Related: Talking to your elderly parents about money

Active, middle class seniors with moderate nest eggs can usually afford decent levels of care at home or in a retirement residence.  As they need more assistance, and costs for in-home care become more expensive, a nursing home may be more appropriate.

The problem is you don’t know how much care, if any, you’ll need, how long you’ll need it, or when.

What are the costs?

Current costs of care in long-term facilities can easily exceed $5,000 per month.

Personal home care ranges from $12 to $90 an hour.

Independent living costs about $2,200 to $5,000 per month for a small apartment with meals and living costs included.

Should you save up, or insure?

Many seniors who need specialized health care typically pay for it with their own savings or home equity.  Do you have the financial resources to pay for the cost?  Determine how long your assets would last.

Related: Senior care facilities – What options are available?

Long term care insurance can relieve the financial burden on your family by providing the coverage you may need.

What is long term care insurance?

Long term care insurance is a relatively new offering that is designed to cover these expenses.  Services can be provided at home, in a retirement home, assisted living, or long-term care facility.

Policies vary widely.  Typically, benefits are paid if you reach a defined level of mental incapacity, or you become unable to care for yourself due to chronic illness or disability, or unable to perform two or more activities of daily living, and/or require continued supervision due to cognitive impairment.

Some plans reimburse you for eligible expenses such as stays in nursing homes or private nursing care – up to a pre-set maximum.

An income plan gives you a monthly payment that can cover any type of service such as a caregiver in your own home – even a relative.

Related: So you’ve been asked to be an executor

See how the policy can be tailored to your individual needs.

When should you apply?

Based on your family history you may feel there is a large possibility that you will need some sort of long-term care.  Or, you may be the type who frets about future high costs and how much the government will subsidize your care.

The younger you are, the cheaper the premiums will be.  A common starting age is in the late 40’s or 50’s.  The state of your health will also determine your rate, so signing up before you have any medical conditions will save you money and ensure you qualify.

At some companies such as Manulife Financial, you are guaranteed renewal for life regardless of changes in health.  The policy won’t be cancelled as long as the premiums are paid.

Some insurance policies will return all your premiums if no claims are made.

What about government paid care?

Each province has basic care in its long-term care or residential care system.  You’ll always be able to get care somewhere, but it only ensures the basics.   Some disadvantages are the long waiting lists and you can’t count on getting into your first choice of residence.

Certain services such as rehabilitation and therapy may not be covered by provincial plans.  You need to pay a “companion” yourself for supplemental care that provides extra help.

Related: Drug coverage for seniors

Final thoughts

Which strategy should you use to fund your final years?  Save or insure?

Long-term care insurance coverage has a number of benefits but paying large insurance premiums comes at a cost.  It may mean less savings, or not being able to enjoy your favorite activities in retirement.

Many people use their savings, put some money into annuities, and use their home equity as a financial reserve.  Some government support is available based on income.

Take the time to think about long-term care when you prepare your retirement income plan.

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  1. Brian So on March 5, 2014 at 1:45 am

    To expand on the qualifying events for benefits to be paid, the 6 activities of daily living are: eating, toileting, continence, transferring, dressing and bathing. If you’re unable to do 2 of those activities then you’ll qualify for benefits.

    These contracts are usually guaranteed renewable, so you can be covered as long as you pay the premium, but premiums can be increased by the insurance company. They’ll do this if they experience a jump in payouts, but increases are limited to once every 5 years.

  2. Gail Bebee on March 5, 2014 at 8:06 am

    An important factor to consider with these plans is whether you will actually receive the benefits when you fall ill.

    Will the insurer challenge your application to collect benefits? My experience with extended health insurance providers is that they are experts at finding reasons not to pay. When you are ill, will you be able to fight them to receive the benefits you believe you qualify for?
    Choose your insurer carefully. Some are better than others.

    • MoneyAhoy on March 5, 2014 at 11:13 am

      Yes 🙂 This is basically all insurance companies.

      Any claim they avoid paying goes straight to the bottom line. Also, it seems strange to me to insure yourself for something that has a 50% likelihood of occurrence… It seems better to plan accordingly that it will happen and be pleasantly surprised if you don’t need the savings for this type of thing.

  3. Bet Crooks on March 5, 2014 at 8:50 am

    Whether you have private insurance or must depend on government assistance it’s very true that you will not be assured of “getting into your [first] choice of residence.” The best LTC facilities have very long waiting lists. Until someone dies, there is no opening.

    While young and healthy we should all be lobbying the government to increase the per patient stipend especially for food for LTC facilities. They receive less money per person than the correctional system. It makes it very difficult for the facilities to offer good, nutritious and interesting food.

  4. David Silver on March 5, 2014 at 1:19 pm

    I’m interested in trying to figure out whether this kind of insurance is worth getting, but this article is really not very useful without giving at least some information about what the premiums will cost me vs. the $5,000 a month the care will cost.

    Yes, I realize the premiums will vary depending on my age and health, and yes, I would really need to shop around for specific quotes for my own situation, but even some sense of how they might vary generically with age or health status would be helpful.

    Then I would be able to make a more informed decision about how much I need to save on my own to meet this potential expense vs. how much I would spend today on premiums instead.

    • Boomer on March 5, 2014 at 3:50 pm

      @David Silver: It’s difficult to give premium information as there are so many variables – age, gender, health, elimination period, amount of coverage – plus optional additional riders – inflation protection, various care inclusions.

      Sample costs can be found at http://www.mydignity.ca/carpinsurance/ltc-cost.html

  5. Rob on March 5, 2014 at 3:00 pm

    Well, from all my readings elsewhere on LTHC, here are the issues, as I see them:

    Those who have low incomes won’t be able to afford the premiums and thus will depend on gov’t assistance.

    Those fortunate enough to be quite well off won’t pay premiums either but rather elect to self-insure.

    The rest of us thus have to decide on (1) the long term viability of the insurance company, (2) as noted elsewhere, whether they will pay up enough in benefits as we would expect when the critical time comes, and (3) whether we will continue to be able to afford the premiums as they (will surely) increase over time.

    This last point is the clincher: the inability to continue paying higher and higher premiums will result in the loss of coverage – as well as – the non-refund of ALL past paid premiums! Lovely, eh?

    So me-thinks, based on those odds, I’ll pass on this and try to grow my investments in a conservative way to afford in-home care, should I need it.

    Based on 50% or 60% needing help, it’s a crap shoot in my opinion.

  6. Kathy Your Net Worth Manager on September 7, 2015 at 10:58 am

    I think there is also a difference here in level of care. The self sufficient apartment but meals cooked is about $3k a month in Saskatchewan for an average place. You don’t have any other costs so thats not as bad as it sounds. I always leave peoples home out of the financial plan so if at 75 / 85 you sell a $450k home and pensions that will cover it. The $5k is usually more medical care and I don’t see people being in those for years and years. I did a lot of research on this a few years ago thinking for myself ( one son ) and in the US the average time in ” extenda care” is 2.5 years . Given if you have a medical need you are usually giving up your pensions to cover the personal cost thats OK. The challenge is more when people want to stay in own home finding some help for $19 an hour. I have 2 elderly clients who found it cheaper to employ a person and share the time than use an agency whose staff kept changing. I think people will get creative, friends live together and share support. I do not trust insurance companies to pay up without a fight and at 80 will you be able to do that?

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