Your last care package

Seniors who need specialized health care typically pay for it with savings or home equity. Now long-term care insurance promises to relieve that burden. Which strategy should you use to fund your final years?

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by David Aston
January 4th, 2013

From the December/January 2013 issue of the magazine.

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Like many Canadians preparing for retirement, Jim Mayo frets about the high costs of care that he and wife Nicole may face later in life. Jim, 53, realizes government-supported seniors’ care is limited, so the Newmarket, Ont., couple wants to make sure they have their own resources to fall back on. But, Jim wonders, what’s the best way to do that?

Middle-class seniors who need care outside hospitals typically draw on savings and equity in their paid-for homes. But Mayo wonders whether Canadians can still rely on those methods. His uncertainty is echoed by financial planners who promote long term care insurance. To help you make an informed decision, we’ll describe the health-care costs you could face later in life and compare financial strategies you can use to prepare for them.

Patchy government care

The focus of government support for seniors’ care is the nursing-home system (also called long term care, residential care, or complex care), although these facilities are often privately operated. Costs are shared by residents, but nursing homes turn no one away because of financial need. Many have long waiting lists, so you can’t necessarily count on getting into your first choice right away.

“The provinces have a really good basic system of nursing-home care, so you’ll always be able to get care somewhere, sometime,” says Peter Silin, author of Nursing Homes and Assisted Living and a care manager who operates Vancouver-based Diamond Geriatrics. But while government ensures the basics, don’t expect tightly staffed facilities to provide a lot of one-on-one attention. It may be worth supplementing care by, for example, paying a “companion” to come in several days a week to provide extra help or attention, advises Silin. Also, in some provinces you can pay a little more for a private room. The cost varies: in B.C. it’s 80% of income up to $3,022 per month, while in Ontario it’s $2,275 per month.

There is much less government support for relatively active seniors who want in-home care, or who live in a retirement residence (including independent living or assisted living). Here’s where it’s particularly helpful to have money of your own. “I think there’s a gap there,” Silin says.

Fortunately, middle-class seniors with moderate nest eggs and paid-for homes can usually afford decent levels of care in-home or in a retirement residence. There’s a good chance you can afford a care worker coming in for two hours a day (at around $25 an hour) if this is a priority. A 40-hour-a-week live-in caregiver costs about $18,000 through a federal government program, not including room, board and agency fees, Silin says. A typical cost for independent living or assisted living is $2,200 to $5,000 a month, depending in part on the level of help you need. That sounds like a lot, but in these residences you get your own small apartment with meals and most of your living costs included. (Costs are greater if you need a lot of care or choose a high-end facility.)

As you need more assistance, costs for in-home care or retirement residences can rise to the point where they outstrip the resources of all but the wealthiest. Yet this is precisely when nursing homes are most appropriate. If you’re wealthy and develop severe dementia, you could convert your home into a private hospital and hire three care workers to provide round-the-clock attention. But is that wise? Silin says some people hold on to the idea of staying in their homes beyond the point where it stops being the best place to meet their needs.

Insured for care

The chances that a 65-year-old will require long term care at some point are 49% for men and 65% women, says Paul Fryer, vice-president, individual business management, at Sun Life Financial, citing 2011 figures from reinsurers Munich Re. His industry developed long term care insurance (LTCI) as a way to help you pay for such costs. With LTCI, you start paying premiums when you’re still healthy—many buy it in their 40s or 50s—and expect to receive benefits later, when and if you require care. Payments are dramatically lower if you start early—although, of course, you’re paying for a much longer period. For example, an LTCI policy purchased at age 45 that provides $2,500 in monthly benefits plus some inflation protection costs $1,230 per year for men, and $1,912 for women, according to a recent quote. Purchase it at age 65 and it will set you back a whopping $3,017 per year for men and $4,838 for women. If you wait, you also run a greater risk of not being healthy enough to qualify.

As Jim Mayo learned when he started to research LTCI, policies vary widely. You typically qualify for benefits if you reach a defined level of mental incapacity, or need substantial help performing at least two of six activities of daily living (typically bathing, dressing, feeding, toileting, continence and transferring from bed). Most policies in Canada pay out an income you can use however you want to use it, but some reimburse specific care costs instead. Sometimes benefits are adjusted for inflation, sometimes not. Some policies require you to pay premiums for life (typically these are waived when you qualify for benefits), while in other cases you pay for only 20 years but premiums are higher. Benefits may be paid out for as long as you meet the medical criteria, or they may be capped after a specific time (like five years) or dollar amount. (See “What to look for in long term care insurance,” on p. 26)

LTCI premiums are intended to stay fixed after you buy a policy, although insurance companies reserve the right to raise them. Premiums on new policies have escalated in recent years, in large part due to low interest rates, says Brian Morin, a group LTCI agent and president of Canadian Long Term Care Insurance. (One insurance executive said his company had been forced to increase premiums on new policies by 20% this year.) Canadian insurers have so far managed to avoid increasing premiums on existing policies, but many in the industry fear they won’t be able to indefinitely.

Uncertainties abound

At one time, people tended to die quickly from heart attacks and strokes, says Paul Fryer of Sun Life. But it’s now more likely you’ll survive those events, just as it’s more common to live longer with diseases like dementia or severe arthritis. “You don’t know how much care you’ll need, how long you’ll need it, and when you’ll need it,” he says. “Then there’s uncertainty about how much the government will subsidize care or how much it will actually cost us personally in 30 or 40 years. When you add up all those uncertainties, funding for long term care becomes an insurable event.”

Many Canadians prefer to get care in their own home or in assisted-living residences, where government financial support is weakest, notes Reh Bhanji, regional director for individual insurance at Desjardins Financial Security. “People say, ‘I want that option to choose where I get care.’”

Save or insure? But is insurance the best way to cover long term care costs?…

To read the full article by David Aston, pick a copy of the Dec/Jan 2013 issue of MoneySense on newsstands through January.

12 comments on “Your last care package

  1. I have serious doubts about the usefulness of this insurance. From the article "An LTCI policy purchased at age 45 that provides $2,500 in monthly benefits plus some inflation protection costs $1,230 per year for men, and $1,912 for women, according to a recent quote." Since $2500/mo is not even enough now to pay for a month in a home, if it's not fully protected against specifically the inflation in nursing home costs, then it isn't worth the cost. By the time you theoretically need to collect, when you are say 75 (30 years later) a not-fully-inflation-protected $2500 will be almost worthless.

    I'd also read the details very, very, very carefully for any such policies. Under what conditions can they deny paying claims? What if you have cancer first, and dementia second. Are you covered? What if you have lots of personal assets: do you have to use those first, and the insurance only pays the balance of the cost? Who gets to decide where you have to live? Can the insurance company refuse to pay if you don't use a building on their approved list?

    I think I prefer to save and invest like mad to be able to pay for my own costs in the future.

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    • First – to the inflation issue – who the heck knows what inflation will be? I remember disability insurance policies being issued with GUARANTEED COLA increases of 8% – I agree it would be nice to have "full" protection – just as it would be "nice" to drive a top-end Mercedes Benz. I also recognize that cost is an issue – and do not blindly take the "save for it" approach. Depending on your gender (it does not vary that much with age), the "save it" approach will cost between 3 and 5 times the insurance approach. Also – what happens if you need longer payouts – or an earlier start – than you assumed in your "save it" calculations?

      Now – none of the majors will care if you had cancer first and then developed dementia. They DO exclude "psychiatrically linked/caused issues" but if the dementia is non psychiatric, it is covered. Personal assets are IRRELEVANT for LTC – they do count for DI and anyone with a net worth over $4 million may see the amount of DI he can buy reduced – however any net worth he builds after issue – even if it is in the BILLIONS – is irrelevant for any quality DI contract. I sold a LTCI contract to a 52 year old who had a net worth of $50 million – it took me 2 minutes to convince him he did NOT need the insurance – and less than a minute to convince him that it was a good use of his money. Again – no quality insurer even has an "approved list" – if you look at the major players (imagine I cannot name carriers on here) in Canada – all pay if you meet the INDUSTRY STANDARD conditions – no matter where you are receiving the care. By the way – approximately 90% of the care is received at home

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  2. Further – note that Ontario is instituting a province-wide senior care program – which will require "wealthy" (We all know that this does not limit things to multi-millionaires) to pay for some or all of the care provided

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    • Don't agree with this…..to make the wealthy pay is socialism.

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  3. We are dancing this tune with my Dad right now. He is 81 and has moved to a retirement residence in October because he couldn't care for himself even with care aides coming in to his condo. We haven't sold the condo yet, as we live 800 km away and need a landing pad every time we run down to deal with the next health crisis, but I face having to pay those costs myself shortly. His rent is over $3200 per month in the residence, including meals and housekeeping/laundry and he has to pay for care aides himself, based on income-testing by the health authority, and that averages another $5-600 per month.

    Although he has recently been diagnosed as palliative, the health authority does not recommend moving him to a long-term care facility, saying they can give him better quality care where he is, than if he is moved again. He doesn't want to move either, so we continue to cobble together a care program for him, and I travel down at least once a month to make sure he is doing ok.

    Dad has a good pension as a retired teacher, but we are eating through his savings to to tune of over $1200/month to cover all his costs. In 2012 have had to buy him expensive medical devices such as a power wheel chair, oxygen concentrator, power lift chair and other bits and pieces to deal with his health issues, all of which came out of his savings to the tune of over $10,000. Yes they are 'deductible' on his taxes, but not against income and have merely reduced his taxes owed to not have to pay more than his pension tax deductions this year, including using his care costs, disability tax credit and many prescriptions.

    My eyes are wide open as to the costs of caring for a frail elderly person now, and I am thinking hard of how this will impact my son when I get to that stage. If Dad didn't have some savings, this would have been much harder to do as the income-testing done by the health authority takes the monthly gross pension as his income, and doesn't look at the costs for living that come out of that.

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  4. Meaningful dealing here with elder care solution issue! Actually, elder health care is an important for their burden life peace even it would expensive too but their have no remain enough money earning source at that time. In that case, planned life could provide proper solution by making long-term care insurance for burden care.

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  5. This post is worth reading because it has the informative that needed to learn for better preparation in last care package. Now Canada one of the best developed countries in the world and their elder care service is very poor. This is not acceptable, though they have to inspire other countries for better elder care issue. Mentioned ways are good for particular elders for their last care and I appreciate them for sorting out suitable ways to stay happy.

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  6. Senior population is growing because of advancement of health and technology.

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  7. for canadians, google LTC Insurance and look at Sunlife 'Sample Policy. It's craziness. My father in law was the lucky one. Died instantly with a massive heart attach at age 54. On the Policy, look for the detail that you need 2x of the listed 'Activities' such as bathing and getting dressed. I'm 49 and looking at this right now. I've got 15 years at least before I retire since the stock market stoll all my profits. Wife is 49 also, we would pay $200/mt not indexed (index is not accurate anyways, doesn't count heating your house and water bill hicks). Scenario 1, you have alzyeimer's. If you get it say at 55, you'll have to wait at least 10 years to collect LTC because it will take that long for the symptoms that fall under the Policy to be in effect. you may use the insurance for 5 to 7 years after that. Scenario 2, your 70 years old, the old injuries have finally stoped you in your tracks. You can't put a shoe on or wash yourself on the seat in the shower by yourself. Only then will LTC kick in. The insurance you could afford 30 years ago is not cutting it now. Everything is too expensive. Time to go to sweeden.

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  8. Careful information that is success to touch my heart. Me and my all friend pray for him and as soon as possible we'll contact with your for helps him. Thanks for giving me a chance to know this.

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  9. hmmmm the info which is provided is good and related to my interest i like this article and would like to say that every one should have this info.

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  10. This is one of the best article and m very thankful for having such kind of stuff. No doubt it is really beneficial and informative one. well done and keep it up.

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