Do you need long-term care insurance?

That means there’s a growing demand for health services and long-term care solutions, according to the National Institute on Ageing. The cost of a space in a long-term care (LTC) home starts at $2,000 a month for basic costs and can run up to $15,000 per month for a private home. 

Plus, Canadians mostly prefer to grow old in their own home. The issue is that a lot of us haven’t planned for it financially. According to an Ipsos poll for HomeEquity Bank, 90% of those surveyed would choose at-home care, but only 13% have planned for it. 

It’s going to be expensive. The cost for a personal support worker (PSW) in Ontario, for example, ranges from $28 to $35 per hour. That goes up if you’re looking for at-home nursing care. A registered nurse can cost between $45 to $80 an hour and a physiotherapist, $90 to $150. Then there are all the other costs, like renovations to make your home more accessible, equipment like wheelchairs or walkers, and services to take care of your home or transportation if you’re no longer able to mow the lawn or drive. 

While government benefits can cover some of the costs, Canadians are going to have to shoulder the rest. Here are some of the options for bearing the cost of care.

What is long-term care insurance? 

Like the name says, it’s an insurance policy that you buy from a provider. You pay the premiums when you’re healthy, working and in good shape. The idea is that you have your future health costs covered when you need it. Long-term care insurance will cover the costs of nursing care; rehabilitation; therapy; help with dressing, eating, toileting, and bathing; meal prep; laundry; and other support. 

“Long-term care insurance is just for elderly folks who are having health issues and can’t live on their own,” says Michael Van Alphen, vice-president, insurance solutions, at Sun Life. “The coverage pays a weekly benefit that provides them an income so that they can deal with the costs associated with that care that’s required when they’re elderly.”

Sun Life is one of just two companies that offer this particular type of policy with Sun Life Retirement Health Assist. The other is MyDignity Home Care Assistance Plan.

There are a few reasons there aren’t more offerings available, Van Alphen says. The insurance company takes on a lot of risk, for starters. And for a long time, LTC insurance wasn’t palatable to the Canadian public due to high premiums for the policyholder and the possibility that they might die before accessing the money. That money just disappeared, instead of going to the beneficiary. 

How does long-term care insurance work? 

Van Alphen says the Sun Life plan’s payouts are triggered when the policy owner can’t do two of six activities by themselves, such as bathing, dressing, toileting, and feeding; if they can’t move themselves without help; or if they are incontinent. Other plans may have a cap on the payments.

What does LTC insurance cost?

LTC insurance has changed over time. “The old products were effectively risk-transfer products,” says Van Alphen. That means the risk was transferred to the insurance company because the waiting period before accessing the services covered was very short, between 30 and 90 days. 

He says the benefits covered by such policies were ample, but “because those benefits were very rich, the premiums you paid for them were higher.” Current plans, by contrast, have a one- to two-year waiting period before payouts begin, so the premiums are less expensive, at $1,000 to $2,000 per year. If the policyholder dies before then, the premiums are returned to the beneficiary. 

Insurance pros and cons

• Pros: Covers most of the services you may need. Guaranteed payments for your lifespan, with some plans. 
• Cons: Expensive premiums, longer wait times to access payments, and capped costs, for some plans.

Paying for care with a reverse mortgage

Another LTC financing option is a reverse mortgage that can fund care. “A reverse mortgage can provide the necessary funds to cover in-home care costs without requiring the home owner to move from or sell their home,” says Niary Toodakian, vice-president, brand and public relations, HomeEquity Bank. Canadians usually discover that specific services, such as the cost of a personal support worker, age technology solutions, and home retrofitting for accessibility, fall outside the scope of government-assisted health-care programs and have to be paid out of pocket, Toodakian says.  

How does a reverse mortgage work? 

A reverse mortgage is a loan against the value of your home, available to Canadians aged 55 years and older. You can get up to 55% of the value of your home and receive a lump sum or monthly payments. This income won’t affect your Old Age Security (OAS) or Guaranteed Income Supplement (GIS) payments. You have the option to pay back the amount borrowed plus the interest during your lifetime. 

Reverse mortgage pros and cons

• Pros: You get a lump sum of money when needed.
• Cons: You or your beneficiary have to pay back the amount borrowed plus interest when you sell your home, move out, or die, or if you default. You may not get as much money for support with a reverse mortgage compared to downsizing. 

Paying for long-term care out of personal savings

You can save for health-care costs if you start early enough. One option is to build a health-care savings plan into your financial plan as early as you can. Then, as you pay off one debt such as a mortgage or a student loan, you can redirect money into the plan, whether that’s by maximizing your registered retirement savings plan (RRSP) or tax-free savings account (TFSA). If your care involves moving into a long-term care facility and you don’t have a surviving spouse, you may be able to pay for at least part of the care by selling your home.

Personal savings pros and cons

• Pros: It’s your money, so you have the final say over what happens with it. 
• Cons: You may not save enough, and you risk financial abuse if you haven’t put proper power of attorney into place before you become physically and mentally compromised. 

Whatever option you choose, talk to a financial advisor to figure out what you can afford, what kind of care you want to receive, and where you’d prefer to live. That way, you can make the best financial planning decisions and continue to live comfortably as you get older.

Read more about insurance:

• Which type of life insurance is best?
• Do you have enough life, disability and illness insurance?
• If you’re going on vacation, don’t forget travel health insurance
• Do retirees need life insurance?