What is Long-Term Care Insurance?

Long-Term Care Insurance is basically Disability Insurance for older individuals, especially people who are of retirement age.

Why should I purchase Long-Term Care Insurance? How does it protect me?

Today people are living longer but we aren’t necessarily living a better quality life. We are still getting cancer, having heart attacks, and experiencing other types of disabling health problems.

In fact, the biggest problem we have now is that by the time people are in their mid-seventies or early eighties, about one-third of them will have some kind of cognitive deficit, such as Alzheimer’s or dementia, and they will need care.

If that person is married it often means that the spouse becomes the caregiver, which can be a huge burden on the spouse. Sometimes it is an adult child who takes on that responsibility. However, statistics (in the U.S.) indicate that approximately one in three baby boomers won’t have a spouse (and therefore is less likely to have a child) available to care for them if that type of situation arises.**

These people may have planned well so that they could live comfortably in their retirement. However, if they incur long-term health care costs, those retirement funds could quickly become depleted. For example, the person might require that a professional caregiver live in the home full-time or they might have to move into a care facility which can cost (in 2012 dollars) $4,000 to $12,000 per month (depending on what type of care is required and what type of facility it is). And if they are married and their retirement resources become depleted, then the surviving spouse could be left with no financial assets.

In order to prepare for these types of situations, people can add Long-Term Care Insurance to their portfolio. Then if a situation arises where long-term care is required, the insurance will provide a monthly tax-free income which augments their existing financial assets. In fact, you could call Long-Term Care Insurance an Asset Protection Program.

Doesn’t the government have programs which assist people who require long-term care?

Because our population is aging, there are greater stresses on governmental resources and there are indications that will only continue to get worse. As budgets get more and more constrained, governments will cut back in those areas where they can. With respect to Long-Term Care specifically, it is not a societal benefit like the health care system. Therefore, because there is no definitive commitment to Long-Term Care, that government program continues to be a target of budget cuts.

If a person requiring long-term care is at home, the government currently covers only 5 or 10 or 15 hours of care per week, based on their financial situation. But, if the person actually requires 12-hour or perhaps even 24-hour care, the government is covering relatively little of that requirement. Therefore, the person discovers that they have to pay for that extra amount of care themselves and it can become very, very expensive.

People who are now age 50 will live longer than those who are now 75, and they are running a huge risk of needing to have a lot of money saved up that may have to go towards health care that is not covered by the province. As a result, their whole standard of living could change significantly.

When should Long-Term Care Insurance be added to a person’s portfolio and is there an age limit when they would no longer qualify to purchase it?

Long-Term Care Insurance can be purchased at any time usually up to the age of 80.

However, because the premium increases as you get older, it is more cost-effective to purchase this type of insurance when you are younger, say around age 40 or 50.

As well, because it is difficult to qualify for this type of insurance, the older you are when you apply the greater the probability that you may not be eligible. For example, if someone has arthritic issues and is walking with a cane, even though they may be otherwise healthy it may be difficult for them to get the coverage approved. This type of thing often happens with people in their mid-sixties but more often with people in their seventies. Therefore the longer a person waits to purchase this type of coverage, the greater the risk the person takes of being unable to qualify for a product that they very well may need in the future.

The majority of claims for long-term care (and this is certainly the experience in the States), is for people who have stokes and for people who have some type of cognitive impairment. Because of the nature of this type of health problem, there is a high risk of these people falling and perhaps breaking a hip or having other disabling issues. However, these people will often live a long time after the issue occurs: 5 years, 10 years, maybe even 20 years. And they are probably going to require either full-time or part-time care, such as assistance with showering and eating and those types of things. They might even need a caregiver living with them in their home because of the potential that the person could go wandering off, or something of that nature.

If an individual in this type of situation has Long-Term Care Insurance and makes a claim under their policy, then the insurance company potentially could have to pay out $4,000 to $8,000 per month. For example, if the continuing costs to care for the individual are $8,000 per month, then that’s almost $100,000 per year. And if the person lives 15 years, that’s almost $1.5 million that the insurance company has to reserve for the care of that person. When that is compared, for example, to the premium of approximately $400 per month which someone at age 50 (at the time of their application) might pay for this type of coverage, it becomes obvious that it is not a profitable situation for the insurer. It also becomes obvious how important it is for people to have this type of insurance in their portfolio because otherwise they would be paying those costs out of their own pocket.

With respect to Long-Term Care Insurance, the insurer is looking for people who are good candidates and good candidates are people who are healthy. So the best time for a person to apply for this type of insurance is when they are still healthy.

**NOTE: The reference for this statistic is: http://www.eurekalert.org/pub_releases/2012-04/bgsu-mbb041612.php

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