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Advisor News Long-term care insurance should be a ‘major consideration’

Financial advisors should consider long-term care as part of a person’s total financial plan – and an important risk to be covered

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Long-term care (LTC) insurance has been called one of the most misunderstood of the living benefits products, but advocates for the product stress its diversity and importance – especially as the country ages and LTC becomes more costly.

“Long-term care is the only unlimited insurance you can buy,” says Jennifer Jacobs, owner and insurance consultant at Oakville, Ont.-based LTCI Consulting Inc. “It will allow you to get tax-free income that will pay unlimited for life as long as – or as many times – as you need it. Frankly, I don’t understand why more people don’t buy it.”

LTC insurance is paid out when the insured requires help with at least two daily living activities such as bathing, dressing, transferring, toileting, continence and feeding, or if there is cognitive impairment.

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“This is one of the most impactful, risky things that is likely to happen to us,” says Ms. Jacobs. “How can it not be a major consideration?”

As Canada’s population ages, the need for LTC is expected to rise. According to the Conference Board of Canada, more than 2.4 million Canadians aged 65 or older will require paid and unpaid care support by 2026, 71 per cent more than required LTC in 2011. By 2046, that number is expected to rise to 3.3 million people, which is almost 10 per cent of Canada’s current population.

So, as Canada starts to look more like Century Village, an increasing number of people will need to be looked after as they won’t be able to do it themselves, says Mark Halpern, chief executive officer and founder of Markham, Ont.-based WEALTHinsurance.com Inc.

Although the wealthy are able to shoulder their own LTC costs, and governments tend to step in for those without the finances necessary to do so, it’s the middle class who are most affected. And younger people are more concerned about paying off student debt and buying a house than planning for LTC in their golden years.

“That is,” says Mr. Halpern, “unless you have a parent or a grandparent who has needed long-term care because this will make you more sensitive to the issue.”

If a family member has experienced an LTC scenario, Mr. Halpern asks clients who paid for it – and what they would do if they were in a similar situation. In many cases, adult children end up bearing the costs if the elderly parent can’t pay for the care.

Ms. Jacobs says the future of LTC insurance sales remains with financial advisors, who should consider it as part of a person’s total financial plan – and an important risk to be covered.

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She acknowledges that many people cannot afford to buy myriad insurance solutions, but adds that with professional help, they should be able to get something of everything.

“I’m suggesting we diversify their [insurance] portfolios a bit more and incorporate a piece of long-term care, critical illness and disability,” Ms. Jacobs says. “It’s not costing them more, per se, it’s just giving them much more diverse protection.”

Although some say LTC insurance is expensive, Sara La Gamba, associate advisor at Sheffar Potter Muchan Inc. in London, Ont., believes it’s “super reasonable” given that the cost of living in an LTC facility can range from $4,000 to $10,000 a month – or more.

She gives the example of a male around 55 who wants a $1,000-a-week benefit, with a 180-day waiting period, and the benefit for the insurance to last as long as he needs it. Premiums would be $250 a month. The man has enough funds to pay anything above $4,000 a month out of his own pocket.

“It’s not necessarily all or nothing,” says Ms. La Gamba, “but if you don’t have any coverage you’re going to pay 100 per cent [yourself].”

There are misconceptions about LTC insurance, including that people who need it and use it are all elderly, frail and approaching the end of their lives. But Ms. Jacobs says LTC insurance can be used for someone recovering from cancer or a serious car accident. It can also be used multiple times in a lifetime.

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However, the premiums are not guaranteed. Insurers typically look at premium costs once in five years. But their premium decisions are not based on any personal past claims, but rather on a combination of factors, including interest rates and actuarial tables, says Ms. Jacobs.

In fact, several insurance companies, including Manulife Financial Corp. and Desjardins Insurance, have left the LTC insurance market, citing limited acceptance of the product and federal laws that restrict insurer access to medical information. Namely, the companies cited the Genetic Non-Discrimination Act, which makes it illegal for an insurer or employer to require a person undergo genetic testing or release the results of previous tests to get insurance.

But Mr. Halpern says there are options. For one, he says some insurers have an LTC definition as one of the covered conditions under a critical illness policy.

“So let’s say someone buys half a million dollars of critical illness coverage,” Mr. Halpern says. “If they can’t do two of six daily activities or have cognitive impairment, they can then access that money with the same definitions as a standalone long-term care policy to provide money for themselves for their own needs or facility care.”

Some people might prefer to pay for LTC out of their own pocket, but also want to ensure they leave something for their beneficiaries. For these clients, Mr. Halpern suggests a joint last-to-die insurance policy to replace all the money that was spent on LTC. The person can pay for the premiums themselves or have their adult children, who may have had to pay for LTC for their parent(s), fund it.

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