Long-Term Care Insurance Basics

Guide to Understanding Long-Term Care Insurance

Like the US, Canada underwent a post-World War II population boom from 1945 to about 1965. With that age group—the baby boomers—now steadily entering retirement, it is time to consider long-term care (LTC) insurance options. Although Canada offers a superior version of public healthcare than the American Medicaid and Medicare systems, you will find that it is still costly and insufficient to rely on the most basic care available. Read on to know more about what to look for in retirement care policies.

What Is Long-Term Care Insurance?

With age comes frailty and uncertainty. Despite the best efforts of modern medicine, mental and physical decline after the age of 60 accelerates rapidly. This is when LTC insurance comes in. This type of coverage ensures you have a safety net if you need daily life assistance or are no longer able to care for yourself.

Moreover, LTC insurance isn’t always for the elderly. Life is full of accidents, so you might find yourself in a situation where you can’t perform the most basic tasks such as eating or dressing yourself. If this period lasts for three months or more, LTC insurance policies cover either part of the costs for a facility or a caretaker in your own home.

In both cases, such care services receive some measure of public funding. Nonetheless, almost all will charge extra fees or co-payments for additional amenities excluded under a LTC plan. Whether life inflicts you with dementia, stroke, Parkinson’s, Alzheimer’s, or cancer, you have to plan for longevity and the challenges that come with it. According to the American Association for Long-Term Care Insurance, close to 70% of people aged over 65 will need some type of LTC.

Interestingly, a survey conducted by Leger Marketing for the Canadian Life and Health Insurance Association (CLHIA) showed that a large majority of Canadians—74%—have not included plans for LTC in their retirement considerations. As a result, premiums cost more and may even increase over time. If you decide not to be a member of that majority, consider hiring an independent insurance broker who will shop around and explore all the options for you, all based on your specific circumstances, including your health status and income level. 

What Does Long-Term Care Insurance Cover?

LTC insurance provides relief for many types of debilities:

  • Inability to care for yourself due to conditions associated with the aging process.
  • The effect of an accident, which could range from a short-term curtailment of self-care of at least 90 days to a permanently debilitating injury.
  • Chronic illness that prevents you from working or taking care of yourself.
  • Mental illness.
  • For daily activities under most LTC policies, insurance covers eating, dressing, bathing, transferring, home modification, incontinence care, and toileting. 

Specific policies vary by province and the insurance companies operating in your area. Therefore, you may want to visit the official website of the CLHIA to see a breakdown of all the costs. Of course, in-home care is dramatically less expensive than an assisted-living facility.

Who Should Get Long-Term Care Insurance?

To decide whether this type of insurance is worth it for you, consider why insurance is so widely embraced by financial institutions and individuals alike. Insurance fees are aligned with the degree of a costly event.

Car, health, fire—even earthquake—insurance policies make it enticing to pay a flat monthly premium rather than be forced to spend a massive amount of money to recover from an unlikely disaster. On the other hand, aging is predictable, so LTC insurance policies are different than other types of policies. They have a variety of waiting times, benefit periods, and premium costs, much of which depends on your medical evaluation. 

In addition, you should take into account that LTC insurance may not benefit you as you had hoped, for the following reasons:

  • Your specific needs might not be fully covered; you might need more expensive treatment for short-term care.
  • You might pay more than you will actually need in your benefit period.
  • The 90-day elimination period that is part of most insurers‘ policies means that you will have to cover yourself for that time span. Considering that about 60% of the elderly occupy nursing homes for less than 90 days, this leaves much to be desired. If you end up staying in a nursing home for less than the 90-day elimination period, the insurance company will offer you no compensation. This poses a considerable problem if you’ve already paid an annual $2,000–3,000 premium for LTC insurance.

Given all those factors, it would be prudent to take out an LTC policy when you are much younger; think of your early forties rather than your early sixties. Over time, you would be able to save at least $400 per year. Moreover, if you have waited so long that you know you will need it, the insurance company will also know that and may deny you coverage. 

Finally, not having some kind of end-of-life plan may severely burden your family, either eroding or even eliminating the family savings or taking an emotional toll on the lives of family members. 

How Much Does a Long-Term Care Insurance Policy Cost?

The average Canadian life expectancy is 82.5 years. This means that most Canadians will need at least 22 years of increased healthcare and safety net measures. Even though much of LTC is subsidized by the government, you will still need to have ample savings to spend your retirement years in the comfort you deserve.

In the end, it all depends on family income level and type of facility. For example, a semi-private room will cost much less than a fully private room. To give you an estimate of how much LTC insurance would cost, here are some average ranges for different provinces:

  • British Columbia, accommodation for one year: $11,900–$37,800.
  • Nova Scotia, two years: $80,000.
  • Quebec, five years: $66,700 for standard care; $107,300 for fully private care.

Additionally, nursing homes are priced differently than residential care facilities. When considering your policy, you will want to know how long you have to wait for coverage to begin and for how long will you be covered.

In 2019, the Alzheimer’s Association reported that end-of-life care cost could reach hundreds of thousands of dollars. Such exorbitant costs can only be covered by LTC insurance, as health and disability policies would not apply.

However, if you shorten the elimination period, you will increase the monthly insurance fee. Finally, you should consider whether your LTC insurance has an inflation protection clause. After all, these are payments that last for multiple decades if you take out a policy in your early forties. Usually, the insurance company will offer you a so-called inflation rider, which you can further tweak with simple or compound inflation protection.

Conclusion and Takeaway 

To a great extent, your health will depend on your genes. Thankfully, if you have a facility nearby, you can undergo genetic testing for a variety of conditions that may be lying in wait. Beyond your genetic inheritance, you can vastly improve your health and avoid many chronic conditions such as strokes, diabetes, and heart attacks simply by improving your diet.

If all of that fails, check that CLHIA information on LTC costs and policies across Canadian provinces. Most importantly, make sure you need LTC insurance in addition to your health insurance. If you have sufficient savings, it may be better to rely on that instead of simply paying monthly fees for several decades. 

After all, your LTC benefits may not fully cover all your needs to your satisfaction. Lastly, be sure to shop around and ask professional advisors. Compare the premiums, guarantees, payment options, benefits timetable, and benefits types—whether the policy is facility-based or comprehensive. The latter entails full coverage no matter where you live. 

Frequently Asked Questions About Long-Term Care Insurance

What is the best age to buy long-term care insurance?

If you are too early or too late, you may find yourself denied an LTC insurance policy. The older you are, the more difficult it is for an insurance company to offer a deal with affordable premiums. Therefore, the best time to apply for LTC insurance is in your late forties or early fifties. This makes it more likely that you are still in good health, which is the first thing insurers take into consideration. In fact, many companies offer discounts if you have passed a medical evaluation with flying colours.

Moreover, think of your birthdays as annual rate increments. In your fifties, this increase will generally be around 2%–4% annually, while in your sixties, it will be around 6%–8% per year. In short, given the substantial discounts if you apply while still in good health in your forties or fifties, standard LTC insurance coverage should cost you about $1,000 per year. On the other hand, if you were to apply for LTC in your sixties, the cost would be around $3,200 per year. 

In conclusion, not only is it not wise to wait, you may also remain uninsured if life deals you a major setback. Consider the sweet spot to buy LTC insurance to be between 55 and 60 years of age.

When can I use the policy?

Every company has different triggers for when you can access LTC benefits. However, it usually happens after you receive a diagnosis for a debilitating condition or a terminal illness, or when you can no longer accomplish at least two of the six daily activities necessary for living, such as bathing, eating, dressing, and moving around of one’s own accord (transferring). Benefits can also be triggered when there is a significant memory or cognitive impairment, such as a diagnosis of dementia or Alzheimer’s.

Following such a determination, there is a waiting period between 30 and 90 days, after which your benefits will become available. 

What are the alternatives to long-term care insurance?

First, you can sell your life insurance policy. With such a large amount of cash on your hands, you can self-insure, which means you would have to cover the expenses of your retirement with the assets in your possession. This may be an advisable option for anyone with total assets over $1,000,000. This way, you would have full control over your expenses, in addition to avoiding premiums.

However, do keep in mind the cost structure of nursing care and assisted living. 

Likewise, insurance purchasers can acquire an immediate annuity to provide them with a reliable income stream to help pay for LTC. An immediate annuity allows you to pay a one-time sum, after which the insurance company provides you with a steady income stream, either for the rest of your life or for a certain number of years. 

Another alternative to LTC insurance is buying a hybrid life insurance/LTC policy, also known as an asset-based policy. With this approach, you would either pay one large premium of about $80,000 up front or multiple large payments over a couple of years. The benefit of this hybrid solution is that if you don’t end up using the LTC portion, your beneficiaries receive the life insurance benefit upon your death. 

Are premiums for long-term care insurance tax deductible? 

Unfortunately, there is no tax deduction for individuals. LTC insurance premiums count as taxable employee benefits. However, LTC reimbursements are also not taxable, just like personal health insurance or disability income insurance payments. Moreover, for businesses, LTC insurance premiums for employees are tax deductible under the umbrella of reasonable business expenses. 

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