WHAT IS IT?
In short, long-term care insurance provides a benefit to the insured if they become unable to perform two of six aids to daily living. As the average lifespan continues to increase, many individuals find that their retirement savings are insufficient. Moreover, even though longevity of life has been improving, longevity of health does not necessarily follow. It is commonplace for an individual to experience a debilitating illness but continue to live for an extended period of time. Situations such as these can put enormous strain on one’s retirement savings. This is where long-term care insurance comes in. Long-term care insurance offers a tax-free monthly benefit which could be used for expenses of any sort. Primarily, expenses such the rent at a long-term care facility or the cost of having private homecare tend to one’s needs at home, are covered by one’s long-term care insurance. These expenses often range into the tens of thousands per year. Without long-term care insurance, many are unable to comfortably afford occurrences of this sort. Many individuals believe that long-term care would be covered in its entirety government programs. Unfortunately, this is not the case. Long-term care is not covered by the Canadian public health care system while auxiliary programs may only cover a small portion of long-term care costs. The reality of long-term care is that the burden often falls to the dependant individual or their family to fund.
HOW DOES IT WORK?
To obtain the protection offered by long-term care insurance, you first need to apply for the coverage. This begins by gaining an understanding of the various products on offer and understanding how your individual needs align with the market offerings. There are four key variables in designing a long-term care insurance strategy: type of coverage, length of benefit period, amount of the benefit, and waiting period. Each of these variables is explained below:
Type of Coverage
Broadly, there are two types of long-term care insurance: coverage that will activate regardless of your age while the second is coverage that will only activate after age 65 or after 5 years if you purchase the insurance after age 60. Other than the age of eligibility, the primary difference between these types of coverage is the cost. If you have ample retirement savings but are still concerned about the cost of long-term care insurance, coverage which activates after age 65 may be optimal. Conversely, if you are worried about the financial effects that being unable to perform certain daily activities would have on yourself and your family regardless of age, then, a policy which would activate prior to age 65 may be worth considering. It is important to note that not only seniors become unable to care for themselves. People of all ages are susceptible to experiences which would leave them unable to care for themselves.
Amount of Benefit
Before deciding on a dollar value to assign to your long-term care insurance plan, it is wise to first identify the type of benefit that best suits your needs. The two types of benefits are income-style benefit and eligible-expenses style benefit. The former offers a pre-determined monthly amount which can be used for any expenses while the latter reimburses the insured for eligible expenses such as nursing, care-facilities, etc., up to a pre-determined maximum. Once this variable is defined, you then select the specific amount of that you require. Generally, benefit amounts range from $500/month to $10,000/month.
Length of Benefit
The length of the long-term care insurance benefit is the amount of time the insured will receive the benefit. Benefit periods range from 100 weeks to unlimited. The unlimited benefit period option is the most popular as the age at which one becomes dependant on long-term care and the duration of one’s dependence is unknown and can vary greatly. Naturally, the shorter benefit periods result in a lower cost while the higher benefit periods produce a higher cost.
When applying for long-term care insurance, you must define the length of time between when you become dependant and when you begin receiving the long-term care insurance benefit. You must remain dependant for the entirety of the waiting period to begin receiving benefits. Traditionally, there are two waiting periods to select from: the 90-day waiting period an the 180-day waiting period. Making this decision hinges on the amount of your retirement savings and the amount of premium you can afford. If you believe can sustain a 180-day waiting period by using your retirement savings and that this is preferable to a higher premium, then, the 180-day waiting period option may be optimal for you. If the opposite is true for your case, then, the 90-day option may better suit your needs.
After you have applied and been approved for coverage, you begin paying premium and may eventually make a claim. Commonly, in order to make a claim, you must no longer be able to perform 2 of the following 6 activities without substantial help. The activities are as follows:
- Transferring (from a bed to a chair, for example)
- Maintaining continence
After filing and being approved for benefits, your long-term care insurance would begin paying as stipulated in the contract.
Who benefits from it?
In the forefront, the primary party benefiting from long-term care insurance is the insured individual receiving the benefit. The cost of long-term care facilities varies from $900 – $5000/month while homecare averages $20-$90/hour. An expensive of this magnitude is detrimental to most retirement plans. Long-term care insurance provides a benefit of up to $10,000 per month. This allows the insured to focus in their well-being as opposed to their finances.
Perhaps equally important, long-term care insurance unburdens an individual’s family. It is common for an individual’s immediate family members to bear the responsibility of funding the cost of their long-term care. 71% of working Canadians who financially support their elderly relatives report the cost harming their own financial stability. By having long-term care insurance in place, one can protect not only their own financial stability, but that of their loved one’s as well.
Who can apply?
Generally, anyone above the age of 21 and below the age of 80 can apply for some form of long-term care insurance. The age at which you apply will greatly affect the premium you pay for your insurance. A 21-year-old individual will pay vastly less than an 80-year-old person for long-term care insurance as the younger person is far less likely to make a claim in the near-term.
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