(April 2003) By 2011, Statistics Canada predicts that one-fifth of the Canadian population will be age 60 or older. It’s expected that 1.5 million of these seniors will suffer from some kind of disability during their retirement years. Many will opt for home care and remain in the community. Some will require a more specialized level of treatment in an institution. All of them are going to have to pay out of their own pockets if they want anything more than the basic level of healthcare provided by the government.
This “aging population phenomenon” has received plenty of coverage in the media, and it is no longer news. As CPP premiums increase and books like Boom Bust & Echo top the best seller list, Canadians have had ample opportunity to consider what the coming demographic shift means to them — and they’re worried. A recent survey conducted by Ipsos-Reid found that nearly half of all Canadians (47%) were concerned about becoming a burden to someone when they got older.
In the know
While people may be wondering about the future of public healthcare and their ability to pay for it, they appear to be unaware that there are insurance products available to help them manage those risks. In fact, the very same survey that uncovered such a high level of concern about aging also revealed that almost half (49%) of the country had never even heard of long term care insurance (LTC).
Those who are aware of the product, however, are buying it. The most recent Canadian data collected and published by the LIMRA, an association providing research on the insurance industry, not only shows a whopping 23% increase in the number of policies sold in 2001 over 2000, but it also reveals a 62% increase in new premiums. It’s particularly interesting to note that 70% of the LTC sales reported to LIMRA in 2001 were placed as a result of face-to-face discussions with a financial advisor — clearly those who are prepared to discuss the subject will not go unrewarded.
Explain the basics
If you’d like to introduce LTC to your clients, start by describing the concept and the fundamental benefits as simply as possible. Rather than getting bogged down in features and riders at the very outset, why not begin by explaining that the product basically does two things — it protects the client’s quality of life and his or her financial assets.
Elderly people no longer able to live independently often face two choices — they can either accept the basic level of care available through government programs or they can deplete their own savings to pay for additional support. LTC eliminates the need to choose between comfort and money by providing insurance funds that can be used to obtain additional help. The client gets the level of care they require while his or her investment capital remains intact.
Generally speaking, LTC policies are issued in three different formats (or a combination of all three):
- Per diem (or indemnity) plans pay a fixed daily amount to someone who is receiving qualifying treatment.
- Reimbursement plans provide coverage for approved services once receipts have been submitted.
- Income plans pay a regular benefit that the insured is free to use however he or she sees fit.
Exactly what services are covered can vary widely. LTC plans may provide funding not only for various levels of institutional and home care, but also for adult day care, respite and palliative care. Of particular importance are the eligibility criteria that determine when the client is eligible to collect insurance — a client may have to be unable to perform a certain number of key daily activities (e.g., eating, dressing, etc.), have a diagnosis of a cognitive impairment such as Alzheimer’s or require a physician’s order. Obviously the broader the eligibility requirements, the more likely it is that the client will be able to collect.
How much is enough?
Determining how much insurance to purchase can be difficult, since one is attempting to predict the future cost of healthcare. In Jacqueline Figas’s book Evaluating Long Term Care Insurance, she does an admirable job compiling data for the current cost of different levels of care across Canada. The numbers vary widely, ranging from $40 to $50 a day for a bed in for a nursing home ward to $4,000 a month for a high-end retirement home.
Figas suggests that when calculating the amount of benefit, advisors consider including more than the current cost of basic facility care to provide for greater flexibility. Adding a bit extra to the basic amount will not only help deal with the issue of inflation, and but could also provide additional funds for medication, adaptive devices or even minor home renovations. Figas puts the average LTC benefit amount at about $100 to $150 a day or $3,000 to $4,500 per month.
Seeing beyond seniors
As for target markets for LTC, those approaching retirement or newly retired appear to be the most receptive. LIMRA data shows that in 2001, the age of buyers ranged from 31 to 84, with an average age of 61. When prospecting for new business, however, don’t just limit your activities to clients who may purchase the product for themselves — those who care about the well-being of their parents or grandparents may have just as much motivation to buy.
While on one hand the future threat of reductions to government healthcare benefits creates more interest in LTC, it could also generate headaches for financial advisors. Clients who purchase policies today should be warned that premiums will likely increase to compensate for what the government scales back. But clients understand that one gets what one pays for — rather than being outraged at the increase in cost, they’ll be thankful to have appropriate protection in place.
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Looking for more information on other living benefits products? The growing pains of critical illness insurance are discussed in the cover story of April’s Advisor’s Edge. To register for a free one-year subscription or to view archived Advisor’s Edge articles, please click here.
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Andrew Rickard is a freelance writer and translator in Toronto, Ontario. A Certified Financial Planner with G.P. Capital Management, he’s also managing editor of the Canadian Journal of Life Insurance and Financial Services. He can be reached at email@example.com.