Do you need long-term care insurance?

Van Alphen says the Sun Life plan’s payouts are triggered when the policy owner can’t do two of six activities by themselves, such as bathing, dressing, toileting, and feeding; if they can’t move themselves without help; or if they are incontinent. Other plans may have a cap on the payments.

LTC insurance has changed over time. “The old products were effectively risk-transfer products,” says Van Alphen. That means the risk was transferred to the insurance company because the waiting period before accessing the services covered was very short, between 30 and 90 days. 

He says the benefits covered by such policies were ample, but “because those benefits were very rich, the premiums you paid for them were higher.” Current plans, by contrast, have a one- to two-year waiting period before payouts begin, so the premiums are less expensive, at $1,000 to $2,000 per year. If the policyholder dies before then, the premiums are returned to the beneficiary. 

Insurance pros and cons

• Pros: Covers most of the services you may need. Guaranteed payments for your lifespan, with some plans. 
• Cons: Expensive premiums, longer wait times to access payments, and capped costs, for some plans.

Another LTC financing option is a reverse mortgage that can fund care. “A reverse mortgage can provide the necessary funds to cover in-home care costs without requiring the home owner to move from or sell their home,” says Niary Toodakian, vice-president, brand and public relations, HomeEquity Bank. Canadians usually discover that specific services, such as the cost of a personal support worker, age technology solutions, and home retrofitting for accessibility, fall outside the scope of government-assisted health-care programs and have to be paid out of pocket, Toodakian says.  

How does a reverse mortgage work? 

A reverse mortgage is a loan against the value of your home, available to Canadians aged 55 years and older. You can get up to 55% of the value of your home and receive a lump sum or monthly payments. This income won’t affect your Old Age Security (OAS) or Guaranteed Income Supplement (GIS) payments. You have the option to pay back the amount borrowed plus the interest during your lifetime. 

Reverse mortgage pros and cons

• Pros: You get a lump sum of money when needed.
• Cons: You or your beneficiary have to pay back the amount borrowed plus interest when you sell your home, move out, or die, or if you default. You may not get as much money for support with a reverse mortgage compared to downsizing. 

You can save for health-care costs if you start early enough. One option is to build a health-care savings plan into your financial plan as early as you can. Then, as you pay off one debt such as a mortgage or a student loan, you can redirect money into the plan, whether that’s by maximizing your registered retirement savings plan (RRSP) or tax-free savings account (TFSA). If your care involves moving into a long-term care facility and you don’t have a surviving spouse, you may be able to pay for at least part of the care by selling your home.

Personal savings pros and cons

• Pros: It’s your money, so you have the final say over what happens with it. 
• Cons: You may not save enough, and you risk financial abuse if you haven’t put proper power of attorney into place before you become physically and mentally compromised. 

Whatever option you choose, talk to a financial advisor to figure out what you can afford, what kind of care you want to receive, and where you’d prefer to live. That way, you can make the best financial planning decisions and continue to live comfortably as you get older.

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