The costs associated with long term care (LTC) can derail your clients’ best-laid retirement plans, according to Susan St. Amand, president of Sirius Financial Services in Ottawa. LTC costs can erode clients’ retirement savings and force them to sell their assets to pay for care – leaving little or no assets to pass on to their children or other beneficiaries.
It is therefore critical that you discuss LTC costs with your aging clients. LTC is not usually top of mind for most people — until it is too late.
Statistics Canada indicates that one in 10 Canadians will require LTC by age 55; three in 10 by age 65; and five in 10 by age 75. And the need is becoming greater each year, with 225,000 people turning 65 each year in a population of which more than 16% are over 65.
LTC costs are expected to rise dramatically, according to the Canadian Life and Health Insurance Association (CLHIA). In a paper published in 2014, CLHIA noted that most Canadians mistakenly believe that existing government programs will take care of their LTC needs. But that is not necessarily the case. Unless clients qualify for government assistance, they are responsible for their own care.
Costs vary depending on the type and extent of care clients receive: institutional or home care; private or public care; or full or partial care. They can range from $20,000 to $75,000 or more per year, depending on where the client lives.
Clients must understand the cost of LTC and put appropriate measures in place to either save for it or purchase LTC insurance to fully or partially offset the cost of their care.
Here are some considerations for discussing LTC costs with your clients:
> LTC insurance mitigates longevity risk
People are living longer due to advances in medical science and healthier lifestyles. Therefore, clients should ensure that their retirement savings will last them for a lifetime and can cover the cost of LTC should they need it.
If your clients are unsure, they should acquire LTC insurance to hedge against longevity risk and for asset protection, St. Amand says. “This will ensure [they] don’t run out of money and still have some left to pass on to the kids.”
You should get your clients into the mindset that they should plan for LTC just as they plan for retirement.
The long game: Post-90 planning
> LTC insurance gives clients choice of care
Clients have access to various types of LTC – both public and private – which varies in cost. Having the financial resources to choose the type of care they want would provide greater peace of mind in the event that they ever need it.
If your clients don’t have the financial resources, then you can help them choose the appropriate LTC insurance that has the features of care they want. The earlier your client acquires LTC coverage, the less expensive it is. Clients might not be able to obtain coverage if they develop certain health-related conditions as they age.
> Emotional and financial cost
When someone requires LTC, the entire family experiences a substantial emotional burden. “We don’t think about it until it happens,” St. Amand says.
If a parent cannot afford the cost of the required care, the burden falls on his or her children, potentially throwing the children’s financial plans into disarray.
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