Rights & Money

Understanding Long-Term-Care Insurance

Are you going to be able to pay for the care you may need one day?

By Olev Eder

Photo: iStock/bowdenimages.


Longer lifespans mean that a typical retirement now lasts decades rather than years. That’s great news, but the downside is that some of those years will likely be spent in less-than-perfect health. And that might mean big expenses, especially if you have to move into an assisted-care residence or nursing home for any length of time.

Those fortunate enough to be able to count on in-home care from family members may be able to avoid most of those hefty bills. Government and volunteer home-care programs can pick up some of the slack. But there often comes a point at which the care someone needs can no longer be handled by family members and visiting nurses.

Given our increasingly mobile society, family-provided care is less often available than it might have been. “Most caregivers are women who look after their children, their parents, their in-laws, and lastly their spouses,” says David Engel, a broker specializing in living-benefits insurance at Braley Winton Financial Group in Montreal. “By the time the caregivers require care, the children have moved away. My own children don’t live in the same city as I do, and there are many others in this same situation.”

In addition, Engel says, “One thing not mentioned very often is the toll—financial and psychological—that caregiving can take on the caregiver. Looking after someone can be a long and thankless task.”

As a result of these realities, most people will at some point have to consider a retirement facility with the appropriate health care resources. Depending on what’s required and for how long, those facilities and resources can get very expensive.

According to instant-life-insurance.net, an online insurance brokerage, the out-of-pocket costs in Canada for a long-term stay at a government-subsidized nursing home can be as high as $2,161.71 a month. The average cost for a room in a privately owned retirement residence ranges from $1,527 to $4,774 a month for a semi-private room and from $1,600 to $7,750 for a private room. And those bills may go on for many years, easily running to six digits.

“The costs of accommodation can vary from $2,000 to $7,000 a month, depending on the services desired or required,” Engel confirms. “My own family went through about $750,000 over a 12-year period. I have a client who has already spent about $1.2 million on her husband. She doesn’t have much left, and that doesn’t take into account her own needs.

“Unfortunately, there’s a mindset in Canada that the government will provide for all our health care needs,” Engel adds. “In fact, the government provides only curative care and has made it very clear that it will not pay for maintenance care. And while there are government-run facilities, you’ll have to assign your pension income to them, and there’s a payment test of what you can afford.

“The main and most expensive cost is for an outside care person,” Engel says. “This cost can add significantly to the monthly cost.

“It’s all about risk management,” Engel says. “One in two Canadians will require assisted living or help at home at one time or another. The average length of time that this care is required is about 4.5 years, but we hear stories of people living for another 10 or 15 years, especially with Alzheimer’s.”

So how do retirees guard against this risk? Long-term-care (LTC) insurance.

Regular disability insurance is designed to compensate for lost wages, but these policies generally terminate at age 65, so they’re of no use to retirees. Critical illness insurance is designed to protect young families should the breadwinner suffer certain catastrophic events, such as heart attack, stroke, life-threatening cancer, and bypass surgery, leaving him or her unable to provide for the family.

Long-term-care (LTC) insurance is designed specifically to help cover the potentially high costs of adverse health-related developments in retirement.

“Long-term-care is like disability insurance for seniors—that’s basically what it is,” Engel says, adding that Canada has been one of the last major countries to adopt it. “This type of insurance was available almost everywhere before it was introduced here 20-plus years ago.”


The Nuts and Bolts…