Thursday, November 7, 2013

The Long-Term Care Risk

Too far to consider

It may be far away in the future and something we'd prefer not to think about, but increasing life expectancy comes with an unfortunate side effect: not only will we live longer, but we also will live longer in poor health.

The long-term care (LTC) risk is the risk of requiring an increased need for assisted care because of declining health in old age. It is hard to predict for individuals and even harder to predict far into the future. According to American Association of Retired Persons, the odds of needing nursing home care or assistance with daily living activities 65%.

In light of this, there is a good chance that most of us will need long-term care services, and an even greater chance that one spouse in a couple will need it. Accordingly, a financial plan should cover future long-term care needs. Knowing what options are available will help you decide on the most suitable approach to manage this risk for your circumstances.

Provincial health insurance in Canada pays for hospital stays and doctor care, but there is limited availability of custodial care for a long-term disability or illness. With the ageing of our population and increasing health care costs, we can expect that more services will be privatized. This means the burden to pay for these costs are mostly for the individual.

The table below will give you a sense of monthly costs of care by province.

Private Room
One bedroom suite
$953 - 4,285
$2,658 - 4,440
$995 - 3,500
$1,595 - 5,400
$1,359 - 2,475
$1,690 - 3,300
New Brunswick
$800 - 2,533
$1,943 - 3,500
$1,500 - 1,800
$1,065 - 4,200
Nova Scotia
$1,705 - 3,100
$1,900 - 3,490
$1,236 - 6,000
$1,849 - 8,000
$1,825 - 2,880
$1,950 - 3,750
$850 - 6,700
$750 - 2,500
$1,380 - 3,700
$1,200 - 4,300

[Source: LifestageCare™ --]

On average, a 65-year-old today will need some type of long-term care services for three years, according to the National Clearinghouse for Long Term Care Information in the United States. Women need care an average of 3.7 years, and men require long-term care an average of 2.2 years.

If you spend your own funds to pay for long-term care, your assets will go down quickly. This is why transferring the risk to an insurer may make sense.

Long-term care insurance

Long-term care insurance provides financial protection if you become unable to care for yourself because of an illness, disability or cognitive impairment such as dementia. It covers stays in a nursing home or the services of a caregiver in your home.

The longer you wait, the harder it is to get coverage. This is because when you apply in later life, you risk being in poor health and that means higher premiums or making you uninsurable.

According to the American Association for Long-Term Care, Alzheimer’s is the most frequent cause of claims over age 65, and they are the longest and most expensive claims.

The cost of LTC insurance depends not only on health history but also on the choice of insurer. Premiums can rise over time, but increases are never based on new personal medical issues. LTC insurance has limits on the total amount of claims. Many plans also have deductibles, meaning you will have to pay out a certain amount for care before coverage kicks in. And if your medical needs exceed those amounts, you will have to pay the balance.

When reviewing your application, the insurance company will take into account several factors to determine eligibility and the premium amount, especially health status and age at the time of application.

Shopping around is difficult because the many features that come with different policies. Other than age and health, three factors have the biggest impact on determining the premium are the type and amount of coverage, specifically the daily benefit, length of coverage, and inflation protection.

There are two types of plans: one that provides reimbursements for eligible expenses such as homemaking or private nursing services, up to a pre-determined maximum. The other type provides a pre-determined monthly benefit amount. Most plans include a waiting period: once eligible for benefits, payments only start after a specified period of time such as 90 days.

To find which companies offer long-term care insurance, look at the insurance finder of the OmbudService Website for Life and Health Insurance:

Here are a few other features to consider:

  • Pooling coverage between spouses may result in lower premiums,
  • Having a waiver of premiums once you are collecting benefits, and
  • Adding an inflation protection rider.

The last item, inflation protection, may be the most crucial aspect of the policy. With typical claims occurring typically at an advanced age, say in the eighties, a policy purchased at age 60 would lose much of its value without inflation protection. This is made more acute with  health care inflation having been higher than general inflation in the last several years. There is a good chance this trend will continue.

Benefits are typically paid when you can no longer perform a essential activities of daily living without substantial assistance, such as bathing,  dressing, mobility, maintaining continence or eating.

Long-term-care insurance can make the difference between living out your life the way you want and becoming a burden to your family or depending on the state. But it is becoming significantly more expensive and harder to get LTC insurance. Average premiums on new policies have risen significantly and some insurers are no longer selling these policies. This is because of low interest rates, increased life expectancies and increasing size of claims.

If the cost of insurance is too high, consider reducing coverage to an affordable level and rely on other savings to supplement it.

Self-insuring for long-term care

For many people, long-term care insurance is simply out of reach. If you have assets to protect, you should carefully review your financial situation to determine that you can self-insure. Self-insuring might work if there are plenty of assets. If you're not in this situation, you'll need to determine how much income will be available during retirement -- income from registered and non-registered accounts, and public and private pensions -- and evaluate how much income is required to maintain your lifestyle. desire. Doing a budget works best, as it accounts for all expenses with precision, including medical costs.

This thorough review will help determining whether you have enough left over for long-term care.

Life insurance

If you already have or can get whole life insurance, it may serve as a source of funds down the road. This type of policy allows loans against the cash surrender value and this can help to cover long-term care expenses. The appeal of this approach is that your heirs get a payout if you don't use the cash surrender value for long-term care expenses.

Lifestyle changes

It’s not too late to reduce our risk of major health problems by lifestyle changes involving diet, exercise, smoking, etc.

Here are a couple of interesting videos that provide strategies to improve our chances of living a healthy lifestyle.

Dr. Esselstyn, famous for his central appearance in the widely successful documentary 'Forks over Knives' and who helped inspire President Bill Clinton to go on a plant-based diet, speaks in this video on the topic of 'Prevent and Reverse Heart Disease'.

In "More Than an Apple a Day: Combating Common Diseases", Dr. Michael Greger has scoured the world’s scholarly literature on clinical nutrition and developed this live presentation on the latest in cutting-edge research on how a healthy diet can affect some of our most common medical conditions. Dr. Greger is a very entertaining speaker with a great sense of humour and the timing of a stand-up comic!

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