There is seemingly not a financial product more suited to the times than long-term care insurance.
Between an aging population, longer lifespans and medical advances, there's a growing sense in financial planning that a sound retirement plan must include a way to address the costs of care for people who can't look after themselves. Long-term care insurance is one option, but you soon won't be able to buy it on its own from one of Canada's largest insurance companies.
Manulife Financial has spread the word that it's retreating from this line of business. "Manulife is discontinuing sales of new individual long-term care insurance in Canada effective 5 p.m. EST on Nov. 30, 2017, due to limited market acceptance of the product and new federal laws that restrict insurer access to medical information," the company said recently in an e-mailed statement. Long-term care will still be offered through bundling with certain disability and critical illness plans.
New federal legislation referred to by Manulife is definitely an irritant to insurers. Under the Genetic Non-Discrimination Act, there is a prohibition against using genetic testing results or requiring a test as a condition of providing a good or service. This information would be useful to insurers because it would help them set premiums on all kinds of insurance. Insurers have said the ban will increase insurance costs, which is problematic for long-term care policies because they're already expensive.
Lorne Marr of LSM Insurance offered this example: For a benefit of $3,000 per month, a female non-smoker at age 50 would pay a premium of $165.45 a month; $306.61 per month at age 60; and $746.63 per month at age 70. "A lot of people wait until they're too old to buy it and the price gets really expensive," he said.
Problem is, most people hit peak insurance in their 40s and 50s. They have their life policies and, if they can afford it, critical illness and maybe disability. There may not be room for long-term care insurance, a product that addresses events that are most likely to happen decades in the future.
Adding to the cost pressure on long-term care is the fact that premiums tend to be guaranteed for the first five years. After that, it's possible they'll rise. It's not hard to foresee a future where people need long-term care for longer periods, thereby pressuring insurers to increase their premiums to maintain profitability.
Long-term care insurance kicks in if you can't, on your own, perform two or more of these six functions of daily life – eating, bathing, dressing, toileting (getting on and off the toilet), transferring (being able to make from a bed to a wheelchair and back) and continence (control of bladder and bowels). Your loss of autonomy can be a result of illness, disability or dementia. Policies pay out tax-free benefits that can be spent as you require, or they reimburse you for certain costs. Monthly costs in a long-term care home could run from $1,000 to $5,000.
Numbers from the Conference for Advanced Life Underwriting (CALU) suggest a modest market share for long-term care. In 2015, 350,000 people were paying total annual premiums of $116-million. CALU thinks the issue of long-term care costs is so important that it's asking the federal government to allow people to annually borrow money from their registered retirement savings plans on a tax-free basis to pay premiums for long-term care insurance.
Asked about the tepid response to long-term care insurance, CALU board member Jennifer Jacobs listed several factors that suggest this kind of coverage hasn't yet hit its stride. "I don't think it's a reflection on a lack of need at all," she said.
Ms. Jacobs said long-term care is still fairly new by insurance industry standards (about 20 years in Canada), and not all insurance companies offer it. She believes that both advisers and individuals don't yet fully understand the cost of requiring long-term care, whether at home or in a facility. One more factor is a misunderstanding of the benefits. You may be able to a claim at any age if you require long-term care – coverage doesn't only apply in old age.
Veteran financial planner Rona Birenbaum isn't sold on long-term care insurance and suggests clients account for the costs themselves through what amounts to self-insurance through advance planning. "For example, if you have a $10,000 annual travel budget and you've got a dining out budget, you're going to direct all that money to long term care down the road."