Insurance Planning

Long Term Care

Retiree's are in somewhat of a quandary in that if they are destitute the government will pay for their long-term care. If you are low income the government will pay some of the cost of your long-term care. If however, you are in a high income the government will not pay for any of your long-term care.

The risk that a member of an elderly couple may require home or facility care is significant Forty-three per cent of Canadians aged 65 and older will spend some time in a long-term care facility. The average length of stay is 2.8 years and 10% will stay 5 years or longer. If the additional cost of care is $100 daily or $36,000 annually, at a 30% marginal tax rate the couple will require an extra $52,000 a year to fund the LTC requirement. This could significantly reduce assets and affect the lifestyle of the non-institutionalized partner.

Home care expenditures have increased 213% annually over the last 20 years. A private nursing home can cost between $3,000 and $6,000 per month. Even with government subsidies, ward coverage can cost up to $1,225 a month, depending on the province of residence. Government nursing homes cost less, but have long waiting lists. The occupancy rate in government certified facilities in Ontario is 98.7%.

Long-Term Care Insurance (LTC) is a recent innovation, prompted by the enormous costs that can be associated with the health care needs of the aged. It is anticipated that over the next decade, the baby boom generation will purchase LTC insurance to provide for their ageing parents.

As with any other type of insurance, individuals should purchase LTC coverage before age, disease, or incapacity limits their ability to pass underwriting standards. Like all insurance, the cost of LTC rises steeply with age, so the premium will be more affordable if purchased early. The insured must be between the ages of 40 and 80 at the time the policy is issued.

If the claimant qualifies for benefits, coverage is for life. Benefits may be payable either in the case of cognitive impairment (i.e., the inability to think, perceive, reason or remember) or if the claimant can no longer perform unaided two of the five activities of daily living: bathing, eating, dressing, toileting or transferring positions of the body.

Long-term care checklist

Before choosing an LTC contract, be sure to know the answers to these questions:   

    Are facility and home care benefits; reimbursement-based, indemnity -based, or fixed income-based,

    What is the method of calculating the benefit amount?

    Are calendar days or care days used to satisfy the elimination period?

    What activities of daily living are used to trigger payments?

    What care facilities alternatives are covered?

    What conditions will trigger payments?

    Are premiums guaranteed or adjustable?

    Can premiums be paid for a limited period?

    Are there non-forfeiture options?

    Are additional benefits available?

    Is there a pre-existing limitation?

    What exclusions and limitations are included in the contract?

The nature of the expense of long-term care insurance is such that it does not qualify as an eligible medical expense. This is not health care insurance and the premiums do not qualify for the medical expense tax credit.

The information contained in this commentary is designed to provide you with general information only, and is not intended to be comprehensive advice applicable to the circumstances of any individual. We strongly urge you to seek professional assistance before acting upon information included herein.

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