LONG TERM CARE — Insurance and other options

Personal reasons bring you to a page like this.  For family or for yourself, you’re wondering how to manage costs of prolonged illness, personal comfort, and Long Term Care.  Here we'll review ALL your options.   Insurance is possible (until 2018).  Spending assets or investments may help.  Family may help with nursing and other bills.   Here we'll look at these and more ... so while you consider these please reach me if I can answer more fully for you.

I met Superman in 2003 …or more accurately I heard Christopher Reeve and his wife Dana at a conference speaking of his care, their personal experiences since the accident in 1994, and costs that rose with his quadriplegia.  Dana wonderfully cared for him until his death in 2004.  She died of lung cancer in 2006.  The story of a stricken superman and his wife could be a tearful movie plot but for them and their family it was intensely personal, courageous, and costly.  After hearing them, I increased my insurances for critical illness and long term care.

Christopher and Dana Reeve were young.  "Long term care" (LTC) isn't just for our 70s, 80, 90s.   People at any age can be paralyzed, suffer stroke or heart disease, get dementia or other conditions in life's lottery of illnesses.  I’ve received a full payout on my critical illness insurance, and I own Long Term Care Insurance (LTCI) for whatever future events could arise.  As we age of course, more hardships can occur.  The mailbox or inbox holds all kinds of unwanted bills.  In this brief letter we’ll help you locate the money to pay those bills!

Richer or poorer? ... we won't assume.  Poorer, you'd insure LTC costs because other savings will fall short.  Richer, you never dreamed of losing it all on illness.  So we compare how people experience the costs and health choices, and find how to pay for them.

SHORT STORIES.

Names and circumstances here are altered but the stories are real.

Trudy was a cheerful 83 year old whose smile brightened the world for everyone around her.  When she quietly shared her worry about running out of money it broke my heart.  She and her husband hadn’t foreseen the costs of extended care.  “If we had known we were going to live so long” ….her voice trailed off.  Her death two weeks later was largely due to the financial stress of reduced health while aging.

John was 73 as we met at his home and he declared that he had 33 months to live.  I asked how he could know this.  “I’ve done the math.  When the house sells and I move to join my wife in the ‘lodge’ we’ll run out of money in 33 months.  We have to die then.”

Mary knew her step-children would criticize her spending (as part of their future inheritance).  She and her husband had sold a business but after his death the kids were taking an unusual interest in how soon they could get their hands on the money.  Part of the answer was to insure Mary’s future health needs with Long Term Care Insurance (LTCI) to guarantee a high level of care and personal comfort whenever frailty would occur.

Jack is the sole survivor of two generations, his own and his son’s.  His earnest goal is to preserve his grandchildren’s inheritance.  Insuring (LTCI) means he has an outside source of funds for healthcare and comfort, while preserving family values for his beloved grandchildren.

Trish repeated as the years went on, she would never live with her children.  “Everybody has their own life to live”, she said.  So it was vital to prepare ahead for health and residential costs related to aging without the children having to re-mortgage homes or draw out of their retirement funds to help Mom.

Dan’s car crash reminds us these things can also hit in our youth.  In a bright sports car Dan met his destiny with a transport truck.  Dan survived but his accounting practice was shattered.  Loss of income: 100%.  Out-of-pocket for health care and treatments, over $90,000 per year.  Yet with his disability and long term care insurances Dan was able to continue supporting his home and family!

FINDING MONEY FOR LONG TERM CARE.

  1. Children can pay for us?  ... But is this fair?  Most families today find it hard enough to manage their own lives and save for a future retirement.  Adding the nursing and residential care of dependent parents (or a child) could cost $5,000 to $18,000 per month.  It would severely damage any family's savings.  Let's find a better plan.

 

  1. Selling house.  This may sound great because you paid into the house for so many years and now it can pay you back.  But what if this house value isn’t enough?  Or what if you prefer that the house value become an inheritance for your family?

 

  1. Life annuities come to mind as they guarantee lifelong income even in our 80s, 90s, and >100. But they don’t suddenly expand to cover accidents, disabilities, physical decline or dementia.  A life annuity can quickly fall short of rising costs for personal comfort and nursing

 

  1. “Living Benefit” provisions of existing life or critical illness insurances.  These may offer funds when death is approaching, or when there is profound physical or mental incapacity.  Details are vital here so ask me further on this. Don’t  presume existing insurances offer this option unless the insurer confirms it.

 

  1. Sell ‘N Stay is an intriguing concept as a home owner sells to an investor or group, so the seller gets full value of the home while remaining in place as a renter.  Not only does this reduce household costs and simplify a family estate, but it also provides a block of money to be invested for personal needs and monthly income …including eventual health costs.

 

  1. Shrinking investments or retirement assets.  Yes, but how long will the money last?  Will it run out?  What will remain for lifestyle after recovery, or for the future needs of a surviving spouse?

 

  1. Re-direct Travel / Lifestyle Budget.  This idea suggests, when needing LTC, draw what you formerly spent for entertainment and travel.  For instance if you have a sizable travel budget and you dine out regularly, that can ease your long term care budget.   I have big problems with this, however.  And any healthy spouse is going to worry that this "re-direct" is going to terminate her/his lifestyle too!  Where is the relief from 24/7 caregiving?  Won't a survivor want to travel and live after recovery or death of her loved one?

 

  1. LONG TERM CARE INSURANCE.   This is an distinct and independent contract, and if we own it in advance, it can pay anywhere from half to all of our future health expenses.  Depending on our age etc. this could pay 5x or 10x more on a monthly basis than what we deposit while healthy.  I own LTCI personally, and this is part of my overall financial planning for life, healthcare, and future comfort.

MORE ABOUT LONG TERM CARE INSURANCE (LTCI).

History:  about 20 years in Canada (near 40 years in the U.S.A.) but it's now on the chopping block.  While existing contracts continue, by mid-2018 it could be impossible to get LTCI in Canada.

When it pays:  in case of dementia alone, or incapacity to do two of the six normal “activities of daily living.”   These include eating, bathing, dressing, toileting, transferring (such as from bed to wheel chair), and managing continence.

Popular with over 350,000 Canadians who own LTCI and pay over $116 Million annually (source, CALU).  Some groups have sought tax credits for people paying LTCI premiums as it would be positive social policy for the government to help families plan for future health costs.  This makes it all the more regrettable for insurers to pull LTCI off the market.

Waiting period?  To reduce costs we choose a 3- or 6-month waiting period, so your insurance coverage then pays until recovery, death, or until you’ve used your full coverage.

How long it pays:  we can design LTCI to pay you for 2 years, 5 years, or unlimited for life.  I’ve witnessed where women can outlive men despite having the same illness or frailty.  If men's average survival is less than three years in profound illness, women may last 5 to 15 years in such care.  If cost is a concern we may insure a husband for a shorter period, and his wife for five years or "unlimited."

If one spouse doesn’t qualify for coverage we may consider a more “golden” coverage for the insurable partner.  Thus investments or home equity may cover costs for the first spouse in need, while insurance guarantees coverage for the healthier partner.

Amounts available:  while many people choose $3000 to $5000 monthly benefit, others get up to $8500 plus indexing for inflation.

Costs can rise.  Like many contracts in life, LTCI contracts let insurer’s recalculate costs every five years.  In the U.S.A. and Canada there have been long periods when insurers kept existing contracts unchanged.  It’s simple: they don’t want healthy customers canceling and unhealthy customers remaining.  Far wiser to raise cost for new clients, and help existing customers keep their LTCI.

TWO DESIGNS YOU CAN CHOOSE.

MONTHLY INCOME.  This offers a direct payment to your bank account each month, tax-free, open to any purpose you choose, and no need for medical receipts.  You and your family decide the type, level, and location of care that will fit your needs best.  (PS: this is the one I own personally.)

REIMBURSEMENT / daily.   Reimbursement and indemnity plans can repay expenses up to a daily limit (say $300) but require you to submit all the medical and professional receipts.  Sadly, expenses are never equal across all seven days of the week so you can get less here than with a monthly income plan.  Another downside – there’s no reimbursement for services given by "natural caregivers" such as family and friends.  Such concerns have made the “monthly income” design (above) more practical and desirable.

A CLOSING STORY – WHEN NEEDS ARISE.

Sally and Janet offer an illuminating story which has been repeated often.  They may be sisters or friends, or recent acquaintances sharing a room in their care home.  Sally has dementia but remains strong physically.  Janet is alert but physically challenged.  Life somehow has twinned this pair because what the one cannot do, the other is able (and vice versa).  Janet understands when it’s time for meals or excursions, and encourages Sally to get them where they need to be.  Sally helps wheel Janet to the dining room, theatre, or bus where staff are also ready to help.

These dear friends both have conditions that qualify for LTCI income benefits.  Such an income can allow the comfort and confidence of a quality-life and excellent care in the home where they are living.

SUMMARY.

LTC is not covered by the government.  Public health offers very little to help with nursing home costs, in-home care, and specialized care and treatments.  Three quarters of Canadians say they've never arranged insurance or savings for the financial costs of long term care (source:  Leger).

At any age from childhood to older years, injury or illness could require round-the-clock care costing $10,000 or $20,000 per month.  The risk on today's families is immense.  The exhaustion of family caregivers is well known.

Above are eight ways to manage the costs of mental and physical decline.  Looking back over these we see the solution isn’t one alone, but a combined approach we can build into your long term financial planning.   Home equity and other investments, special clauses in other insurance plans, re-allocating travel and other spending, also personal support from loved ones, can all be combined.  To ease the burden on family caregivers, to protect family assets, indeed to gain a new tax-free income dedicated to your personal care and comfort, LTCI has been vital in our planning for both wealth and health.

Yours in Financial Security for LIFE!

Brian Weatherdon, MA, CFP, CLU, CPCA. 905-637-3500

627 Guelph Line, Burlington, Ont. L7R 3M7.  1-877-937-3500

Brian@SovereignWealth.ca

Author:  (2013) A Lifetime Of Wealth — And How Not To Lose It(2013) Protecting Life, Loved Ones, and Future Dreams.  (2015) Your Business, Your Retirement: Halton Retirement Study.

** This monthly letter touches on key strategies in Canadian and global investing and financial planning. This letter is not an offer to sell any kind of security, insurance, or program. Historical returns and risk measures are not a valid guide to future performance. Returns are from publicly available sources and research from a variety of firms including but not limited to GLC, RBC, CIBC, Mackenzie, Franklin Templeton.  Opinions reflected in this letter belong solely to the author and no other body is responsible for the content expressed here. We value opportunity to consult alongside your legal and accounting firms to advance your financial security and unique goals. We are grateful always to receive your comments and questions.
 

2 comments

  1. Brian
    This is well written!
    What do you determine is the sweet spot age to purchase LTCI?
    What would be the approximate costs for $5000 monthly benefit for example?
    Thank you.
    Chris

  2. Thanks Chris. There are two ways of considering the “sweet spot” of when to buy LTCI. Naturally we think of preparation for senior years in which case I’d say the sweet spot is between ages 55-72. Younger, however, is a professional or business owner at 40 or up who realizes traditional disability protection would fall dramatically short of sustaining income and covering health costs. Above is “Dan” who near 40 years of age already owned LTCI alongside disability coverage. Christopher Reeve further exemplifies the advantage of owning LTCI at a relatively young age.

    Your second question relates to cost. If wanting to avoid the cost of LTCI, we’d surely want to avoid the uninsured costs of personal care. Accident and sickness is no respecter of age: paraplegic from age 21, stroke victim age 34, their personal health expense can easily strip away any and all family savings. We can also look at an expected “return” in the following way…

    LTCI price is based on a few factors including age so premiums might range from eg. $150/month to $500/month. A key question to consider is: How long might we be paying the price, versus How long may we be receiving the benefit? Imagine we paid $250/month for a time, in order to receive $5000/month in benefits for a time. Would this seem like a suitable return?

    In the minds of people mentioned in the personal stories above — Trudy, John, and Mary; Jack, Trish, and Dan — it’s clear LTCI offers a vital impact on the quality of life. For persons or families who make the claim for LTCI benefits, no one has protested that they ultimately didn’t wish to receive the benefit. They made the claim, receive the benefits, and gain the comfort of added wellbeing (also helping to preserve other savings).

    Each person’s situation is special and unique. In speaking together we can review how LTCI fits one’s personal needs and financial comfort.

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