Long-term care insurance: Why you need it
By Lisa Evans - Published on Tuesday, 31 May 2011 11:59
We invest in RRSPs hoping that we will have a nest egg to enjoy in our old age. It’s our insurance against post-retirement poverty. We purchase travel insurance in case of illness, lost luggage or flight cancellations, and we purchase home insurance in case of fire or natural disasters. We are a society of insurance. However, an insurance that often gets overlooked is the one that is most likely to get cashed in, and the one that you will need when you are at your most vulnerable. It’s long term care insurance.
Canada’s rapidly aging population has caused growing concerns among government and society about the availability and costs of future services for seniors. It’s unknown whether publically funded programs will be adequate to meet increasing health care needs, whether there will be sufficient employees available to provide these services, and how many seniors will be left to fend for themselves.
Increasing health care costs have resulted in publically funded long term care services being frozen or reduced in recent years.
Provincial Health Insurance plans cover a visit to the physician, hospital and various diagnostic and treatments services, but not long term care. This is a service that is provided outside the scope of the Canadian health care system and its cost varies from province to province.
The Council on aging in Ottawa stated in a 2008 report that of those aged 65, 43% will spend time in a nursing home or long term care facility for an average of three to four years at some point in their lives and of those, one in five will stay for more than five years.
Most Canadians mistakenly believe that the government will take care of them in their old age. This might have been the case years ago, but our rapidly aging population suggests we have a very false sense of security. A recent review of the long term care insurance industry published in the Globe and Mail’s Report on Business on May 7, 2011, advises individuals to take responsibility now, while they’re healthy as the financial impact of long term care can be devastating for families.
Following in the footsteps of our southern neighbour, Canadian insurance companies have recently begun to offer insurance for those who want to protect themselves against anticipated escalating costs of home care and long term facility care. Long Term Care Insurance policies have been established to fill the gap in provincial health insurance plans and private supplementary health insurance from employers that normally do not cover long term care. They are designed to help people pay for someone to take care of them when they can no longer take care of themselves and should be incorporated as part of your financial plan for your golden years, alongside your RRSPs.
Surprisingly, long term care insurance has not flourished in Canada to the same degree as the United States. Just over 73,500 Canadians owned individual long term care insurance policies at the end of 2010, up only 5% from the previous year, compared to more than 8 million Americans who hold long term care insurance policies.
Only a few insurance companies in Canada sell long term care insurance policies. RBC and Sunlife Financial are two companies that do provide these policies.
Long term care insurance policies have not been standardized across the country. Companies sell policies that combine benefits and coverage in different ways, so it is best to shop around and look for a policy that suits your individual circumstances.
Some policies provide coverage for one up to five years. Other policies provide a pool of money ranging from $50,000 to $300,000 from which individuals can draw over their lifetime. The most expensive policy option is coverage that has an unlimited lifetime benefit.
There are three ways that long term care insurance can be paid out. The first is a reimbursement policy, which is the least expensive. Under this plan, the company pays all or some of the claimant’s out-of-pocket long term expenses up to their designated daily, weekly or monthly limit.
The second is an indemnity policy which pays out the designated daily, weekly or monthly amount for qualified expenses. Since proof of care is required, there is less chance of fraud, making this policy well priced.
The third option is an income policy. This option is the most expensive and more prone to rate increases. It pays the designated daily, weekly or monthly limit to qualifying claimants regardless of whether services were received. Once eligibility is established, benefits are paid out.
With a variety of options available, it’s advised to take some time to consider which will be best for you and your family. Your future medical health is as important as your financial health. So, when designing your financial portfolio for your golden years, consider including long term care insurance.