With the markets still in flux, consumers are becoming increasingly anxious about protecting their assets. Long-term-care insurance (LTCI), which surfaced in Canada about 15 years ago, has emerged as a go-to product when developing a comprehensive financial plan.

With a vast number of Canadians approaching their mid-60s, the need to insure against catastrophic health problems is greater now than ever before. Though the government offers financial assistance, the harsh reality of health costs tells us aid might not be enough.

LTCI basics

One of the critical catches of an LTCI policy is that it only pays out when a person suffers cognitive impairment or can no longer perform two of the following six activities:

  • bathing
  • dressing
  • eating
  • maintaining continence
  • toileting
  • transferring (moving into or out of a chair, bed or wheelchair)

It’s important to convey these restrictions to clients when addressing LTCI options, because many assume this insurance will fund voluntary stays at a retirement community. With room and board in some retirement communities costing upward of $5,000 per month, clients should never assume their insurance will fund all associated costs.

Similar to disability insurance, LTCI has an elimination and benefit period. The premiums for LTCI vary depending on the benefit period, which can range from a certain number of years to the remainder of one’s life. These benefits may also be used to fund home care.

Certain policies also allow for a return of premium—if clients don’t end up using the LTCI, they can receive a refund. A beneficiary is also entitled to the refund if the client dies before using the LTCI.

LTCI limitations

The Canadian government covers a significant portion of healthcare costs and provides government-funded facilities to those suffering from an extended illness or injury.

As a result, many Canadians think they don’t need LTCI or other long-term-illness-related insurance products. Other countries tend to have a slightly different attitude toward insurance and view it as a necessity.

The conditions imposed for LTCI payouts can sometimes prove tricky as selling points—people feel once they reach a stage where they can no longer fulfill part of their daily living functions, their end is almost near.

On the other hand, some clients who purchase LTCI policies think they might never fully see the benefits despite being ill, because they’re still able to perform the six basic daily living functions.

Clients frequently express more interest in “Term to 100” life insurance, because it’s much more affordable. Besides, its payout to beneficiaries is guaranteed. LTCI offers no payout guarantee; it simply serves as a safety net.