As baby boomers head into retirement, many are neglecting to plan for a major potential cost that threatens to rapidly deplete their nest egg: long-term care (LTC). Financial advisors have a huge opportunity to help clients plan for this risk, experts say, with an insurance product that they say is receiving far less attention than it deserves.
LTC insurance protects clients against the hefty costs they could potentially face should they require care in the future. As Canadians are living longer than ever, this is a growing risk that should be considered as part of the retirement planning process, according to Paul Fryer, vice president of individual business management with Toronto-based Sun Life Financial Inc.
“People are living longer, but not necessarily healthier,” says Fryer. “People’s health deteriorates with age.”
Advisors have a responsibility to make clients aware of the potential impact of health-related costs on their retirement plans, says Marg Manias, insurance manager and living benefits specialist with Investors Group Inc. in Halifax.
“It’s incumbent upon the advisor to understand that it’s his obligation, his duty of care, to talk about this,” says Manias. “We can’t tell people that we’re their financial advisors and not prepare them for their care years financially. It’s irresponsible.”
In many cases, no one else in a client’s life is addressing the topic of LTC with them, notes Mark Halpern, certified financial planner and president of illnessPROTECTION.com Inc. in Markham, Ont.
“We’ve got to do the best job possible and let our clients know what are all the risks.” says Halpern. “Nobody else is asking the tough questions.”
Even within the financial advisor community, few are currently addressing the topic with their clients. This leaves a significant opportunity for advisors who are talking to their clients about planning for LTC.
“We have a big opportunity, because this market is tiny – nobody is doing it,” says Halpern. He talks to all of his clients about planning for LTC, and he says they’re generally very receptive to it.
“People are looking for having choice and options and flexibility,” he says. “That’s where long-term care insurance comes in.”
The potential market for this product is extensive. With a massive cohort of Canadians approaching their senior years, the number of individuals requiring care is expected to surge in the decades ahead. Approximately 20% of Canadians will require LTC as they age, according to Stephen Frank, vice president of policy development and health at the Canadian Life and Health Insurance Association Inc. (CLHIA).
“There’s going to be just an explosion of demand for this over the next 30-40 years, and it’s going to be a real challenge to support all of the people who are going to need care,” Frank says.
Furthermore, care is certainly not cheap. On average, LTC costs $5,100 per month, however it can cost upwards of $8,000 per month, depending on the province and the type of facility.
This poses a sizeable risk to the retirement plans of most Canadians.
LTC insurance protects clients against this key risk by offsetting some or all of the cost of care, through monthly benefits of as much as $8,000. The benefit is typically triggered by a chronic illness, disability, cognitive impairment, or other age-related condition that prevents a client from managing a number of the activities of daily living without assistance.
“The long-term care insurance product is probably one of the most innovative estate preservation tools that we have in our whole quiver,” says Manias.
However, uptake of the product has been quite weak since its introduction 15 years ago. Whereas longevity risk and market risk tend to be top of mind for many Canadians who are heading into retirement, healthcare costs don’t often receive much consideration. Many Canadians assume that the government will cover any care they’ll need in old age, and many simply prefer not to think about the possibility of getting sick.
“None of us wants to even entertain the thought of ever requiring care,” says Manias. “We just don’t think of ourselves as being old and frail.”
This is the second article in a three-part series on long-term care insurance.
On Thursday: Strategies for selling LTC insurance.