Long-term care insurance: Should you buy it?You’ve worked hard all your life to achieve your personal and financial goals. You want to enjoy a comfortable retirement and pass on a financial legacy to those you care about.
But here's the problem—
The reality for most of us is that there’s a very good chance our health and/or our spouse’s health will change during our retirement years and we’ll require nursing services and/or long term care. Will the retirement nest egg you’ve built be adequate to cover unplanned expenses? Imagine what the costs would be? Will there be enough money? And what about that legacy you’d like to leave your loved ones?
- In a decade, seniors will likely outnumber children
- For the first time in Canada’s history, four million Canadians are over the age of 65
- Every province and territory’s population is aging
The fast-aging profile of the country will drastically alter the social landscape as more pressure is placed on the health-care system and the labour market. Our aging population, longer life spans, spiraling health care costs and the growing strain on government services all point to a need to plan for our own, potential long term care needs.
What are your long-term care options?
To create an effective plan, you need to first understand the issues, then consider your options and finally, implement the solution that will best protect both you and your family. To pay for future long term care needs, you or your family can:
- Sell your assets as needed, or
- Purchase long term care insurance now to cover unexpected care costs
You may want to consider a long term care insurance policy, if you:
- Are a Canadian-resident taxpayer and in good health
- Have accumulated assets that may include:
- a personal residence or other real estate
- shares in a family or private business
- public company shares
- RRSP/RRIF assets
- interest-bearing investments
- mutual funds
- Want to protect your financial resources
- Want to avoid being a financial burden on your family
- Are receptive to long term planning strategies
Jeannette is 55 years old. She owns her own home, a term deposit, a small stock portfolio and some registered funds. She intends to contribute to her investments until age 65. At age 65, she wants to retire with an annual income of $50,000 paid out of these assets. Since her mother is currently living in a long term care facility, she anticipates that she may need long term care for six years, perhaps starting at age 80.
In 25 years when Jeannette turns 80, long term care costs are estimated to be over $49,000 each year. The following example shows the positive impact long term care insurance can have on the future value of her assets by calculating the insurance costs and long term care costs and deducting the retirement income amounts. This example assumes a personal tax rate of 30% and that 50% of the capital gain is taxable.
|Asset||Market Value Today||Growth Rate||Future Value Age 86 No Care Required No Insurance||Future Value Age 86 Care Required No Insurance||Future Value Age 86 Care Required With Insurance|
|With insurance Personal Residence||$250,000.||1.00%||$340,332.||$88,587.||$340,332.|
|Term Deposit||$120,000.||3.50%||$111,764.||$ 0||$ 0|
|Stock Portfolio||$ 60,000.||4.00%||$ 10,752.||$ 0||$ 0|
|RRSP/RRIF||$110,000.||6.00%||$ 15,869.||$ 0||$ 440.|
|Total future value||$478,717.||$88,587.||$340,772.|
A long term care insurance policy can help protect you and your family from the financial impact of health care services and long term care. It provides you with cash when you need it. Contact your advisor to discuss this retirement planning tool.
by Mary Robertson
Mary Robertson is a Certified Financial Planner, Elder Planning Counselor and Financial Divorce Specialist with Living Life Cycles Inc. of Brighton, Ontario. http://livinglifecycles.com
Finding the best Alzheimer's care: Nine tips
Long-term care homes in Canada
What type of long-term care insurance do you need?
NEW E-book: Financing your retirement—Planning ahead
How to save money when you don't have much of it!