Article as it appeared in Good Times magazine (The Candian Magazine for Successful Retirement), published by Senior Publications Inc.

 Long-Term care insurance is a relatively new type of insurance you may want to consider. It provides benefits that help pay for care in your home if you can't manage without assistance and/or help pay for institutional care if that becomes necessary.

Some policies, like Liberty Health's HomeCare Plus, provide in-home coverage only. Other policies can help fund institutional care once the policy holder meets specified criteria. Manulife's LivingCare policy provides coverage for both at home and institutional care, while Clarica offers an income plan, so you can spend the money on whatever you need.

For most retirees, the attraction of LTC insurance is that it can provide enough added income to ensure they can receive care and remain in their homes for as long as possible.

When it comes to care in a private residential facility or institution, benefits can be applied to those costs. For example, if an individual requires care in Ontario and moves into a government-subsidized long-term care facility, the monthly fees may range from $1,400 to $2,000, depending on the type of accommodation. LTC insurance benefits could be used towards these costs.

In some cases, a retiree who doesn't require the extensive care of a nursing home may be able to get by in a private retirement home by hiring some periodic extra assistance. Some types of LTC insurance can be used for these costs too.

Canadians are living longer and one consequence of our increasing lifespan is a rising incidence of serious long-term illness or disability. By the mid-1990's our average life expectancy had climbed to 78.3 years (men and women combined) according to StatsCan data. But for almost 10 of those years, on average, we can expect to suffer some form of incapacity and need helping hands.

If you have a large and loving family or friends close by, help around the house may be readily available. That's not always the case, though, and even if it were, at some point you may have to move to a nursing home. And no matter where you live, it can be expensive to get care.

Where will this money come from? Those who are wealthy can afford to pay. And while those with low incomes may not achieve the same choice standards, they may at least benefit from various government subsidies, grants and tax credits.

"It's those people who are caught in the middle that fall through the cracks," says Lester Heldsinger at Manulife Financial in Waterloo, Ont. "Those are the people who wold benefit most form some form of long-term care insurance".

Indeed, the prospect of long-term disability can be financially daunting, and in many cases the only solution is some kind of insurance that can provide "living benefits." But while sales of such long-term care insurance hav been surging in the U.S. lately, this product is still relatively new to Canada.

Introduced here about five years ago, LTC insurance is available only from a handful of vendors, including Clarica, Manulife Financial, RBC Insurance and Liberty Health. "Long-term care insurance is not a big area in Canada yet," says Ian Shaw, president of Insurance by Design Ltd. in Oakville, Ont. "As a result, not a lot of agents are familiar with it".

CHOOSING THE RIGHT POLICY

How do you choose the right policy? What do you look for, and what are the benefits and pitfalls of the various policies currently available? For starters, says Shaw, you need to get a copy of the actual contract and read it carefully. "That will help you understand the definitions of what is being covered and how the policy works."

Jacqueline Figas, author of the book Evaluating Long-Term Care Insurance concurs, but adds that despite the simplified wording in newer insurance contracts, these LTC policies can still be confusing. "With living benefits, things are much greyer. You have to rely on definitions to frame the circumstances under which payments will be made."

ELIGIBILITY CRITERIA

To qualify for benefits, a policyholder must meet certain criteria. In general, most LTC policies define eligibility for benefits as becoming unable to perform any two of the following five functions of basic living: (1) Bathing; (2) Eating; (3) Dressing; (4) Toiletting (some LTC insurers deem "continence" to be a separate function from toiletting); (5) Transferring (that is, the ability to move in and out of bed or chairs.)

Figas says, however, that the definitions are not always identical. "What differs is how they describe the conditions where a loss of use is actually considered a loss. The measure of functional loss can be the need for standby assistance, the complete dependence upon another individual, the inability to perform the task unaided or aided with assistance of a person or device. Price varies according to how liberal the definition is".

So for example, if you needed a walker to get to the bathroom, that would not necessarily denote eligibility, because you still could get to the bathroom. Lester Heldsinger says, "With Manulife's Living Care policy, the fact that you need a wheelchair to get around would not mean you are unable to do so. You would qualify if you needed help getting into and out of the wheelchair".

As a result of such variations, Figas says two of the most important factors to consider in weighing LTC policies are the flexibility allowed in defining care, and the ease of qualifying for benefits.

LTC PREMIUMS

Obviously, another key consideration for most retirees is the cost of the policy. LTC insurance is not cheap - monthly premiums can range from as little as $20 or $30 up to hundreds of dollars, depending on the nature of the contract, as well as your age and health.

LTC insurance is much cheaper when you are younger, but people seldom think about their needs until they reach retirement age and chronic problems begin to surface. And that, according to Figas, is the wrong time to buy. "It's the equivalent of trying to get a fire insurance policy when you see smoke coming out of the attic. For one thing, your current health receives heavy weighting in the underwriting process, and the insurers are on the lookout for problems that may give rise to claims, so you may be unable to get coverage".

On the other hand, though, LTC underwriters are not so concerned about major illnesses or medical problems that are usually fatal, such as cancer or heart disease. "These problems will generally kill you, and that is actually to the insurers' benefit", says Ian Shaw. "They're more concerned with lifestyle - whether or not you have a spouse to remind you to take medication, whether you are active, follow a good diet and so on."

FUTURE PREMIUM INCREASES

Another important consideration is how much your premiums can rise in future. While your rate will always be based on the age at which you purchased the policy, insurers may increase premiums for everyone in a particular group when the policies come up for renewal, usually every five years.

"You want to have protection against future premium increases," Figas says. "Most of these policies are guaranteed renewable, but if an insurer experiences adverse claims experience in a certain age group, they're going to raise the premiums for the whole group".

LIMITED PAYMENT OPTION

Some LTC policies have a "limited payment" option so, for example, the insurance is fully paid up in 20 years and no further premiums need to be paid, regardless of what happens. Some policies offer a cap on future increases, which can be very valuable.

But Shaw says that such caps may not be around much longer. "Companies are now rethinking this feature and I've heard it may be changed by as early as this fall. Right now is the best it's going to get in terms of security, so if you're thinking about LTC insurance, get it now".

Figas adds: "You really want to consider LTC insurance as part of your overall retirement planning, and have a policy in place when you retire. By buying early, you can get insurance a lot cheaper, and you can take advantage of the limited payment feature. I would say the ideal time for most people to buy LTC insurance would be in their late 40s or early to mid-50s.

BASIC COVERAGE VARIABLES

Apart from your age and health, and the structure and definitions of the policy, there are three key variables that will affect the cost of any LTC insurance:

1) The daily or weekly benefit. - Some companies express benefits in daily terms, others in weekly terms, but they work out to be similar. Daily amounts typically range between $20 and $300, while weekly benefits typically range between $150 and $2,000. The higher the daily benefit, the higher the premiums you are going to pay.

2) Elimination period. - As with disability insurance, most LTC policies offer a choice of waiting periods before benefits are actually paid. The typical elimination periods are 0, 30, 60, and 90 days; the shorter the waiting period, the higher the premiums.

3) Total lifetime payout. - Some plans stipulate a maximum flat dollar amount, such as $50,000 or $250,000 over your lifetime. Others stipulate the equivalent of a number of days or weeks of benefits (e.g., 750 or 2,000 days; 150 or 500 weeks); the most expensive plans provide unlimited lifetime benefits.

So, for example, Manulife Financial's Living Care coverage providing $100 per day in benefits, with no elimination period and a maximum 750 days' coverage (or $75,000 in total) costs $111.60 a month. by comparison, $100 per day with a 90-day elimination period and 2,000 times daily benefits costs $133.20; reducing the elimination period to 30 days, with an unlimited lifetime benefit, raises the cost to $190.80 per month.

SOME FURTHER CONSIDERATIONS

Amother important consideration in buying LTC insurance, says Figas, is a safeguard against the policy lapsing if you forget to pay your premiums. "You have to have continuity during the elimination period, but often at that point you may not be capable of writing those cheques".

Some LTC policies have a nonforfeiture option, meaning the policy will not lapse if premiums go unpaid, although the benefits may be reduced according to the amounts overdue. Others may have special reinstatement privileges if the missed premiums are subsequently paid.

"With most LTC policies, you can make a designation to have a third party notified if premiums are late," says Figas. "This is something you should always do in order to ensure that your coverage will be available when it's needed."

Beyond the basic coverage, various LTC policies also have certain bells and whistles. Manulife Financial's policies, for example, will provide up to an extra $5,000 for equipment if you qualify for the daily benefit. Clarica's income plan allows you to allocate between $150 and $2,000 a week, providing some added flexibility.

THREE POLICY TYPES

While most LTC policies are similar in many respects, there are some significant differences. There are three different types of basic policy structure:

Reimbursement plans - are generally the least expensive. You must first pay whatever expenses are incurred and then, provided you qualify for coverage, you can submit your receipts for reimbursement in much the same way as you would with a typical drug plan.

Indemnity plans - pay the expenses up front on your behalf, so there is no immediate outlay required. But Figas notes that these policies employ "gatekeepers" who will decide where and how the money can be spent. The gatekeeper controls access to the services or products you receive. So, for example, paying a daughter to help you around the house might not qualify as an eligible expense."

Income plans - operate much like disability insurance, in that once you qualify for benefits, you get the daily or weekly benefit, and it can be spent as you prefer. This tends to be the most expensive form of LTC coverage, although it also provides the most flexibility.

BALANCE COSTS/BENEFITS

All these factors need to be considered when buying LTC insurance, but both Shaw and Figas concur that the final decisions on what coverage is most appropriate, and when to buy, will be up to the individual.

"There is no such thing as a perfect policy", says Figas. "You need to balance the cost of the premiums against the potential benefits, based on your priorities. And you need to bear in mind that those priorities can change over time."

LTC INSURANCE - A CONTINUUM OF COVERAGE

For most retirees, the attraction of LTC insurance is that it can provide enough added income to ensure they can remain in their homes even as they're receiving care for whatever ails them. But eventually, they may end up in a long-term care facility - that is, a nursing home - and this can be expensive.

Government-subsidized nursing homes generally provide all the medical services and care needed by residents, at no cost. But the accommodations themselves will cost residents another $1,400 to $2,000 a month out of pocket, unless their income is low enough that they qualify for additional government subsidies to cover part or all of this cost.

The extent and nature of those subsidies can differ by province. "It's better in Ontario than in the Maritimes, for example," says Jacqueline Figas, author of "Evaluating Long-Term Care Insurance". In the Maritimes there is no government subsidization of long-term care facilities, unless you meet their income as well as asset tests."

Unsubsidized nursing homes can charge $4,000 and up per month for private accommodations, although the facilities and amenities are generally nicer than subsidized homes.

In some cases, a retiree may not need the extensive care of a nursing home, and may be able to get by in a regular retirement home, for example, with periodic assistance from a visiting nurse. But here, too, the costs can be prohibitive because no government subsidies are available for such accommodations.

"The purpose of long-term care insurance goes beyond the home," says Figas. "What you want to do is look at its use to provide a continuum of care based on your changing needs."

"Initially, most people want to stay in their homes," Figas adds.

"After that, yes, you can apply for government subsidy based on your income and possibly your assets. You must prove necessity - that is, that you need to be looked after - and you must prove you have insufficient finances, and then you must wait until ward accommodations become available.

"Long-term care insurance brings faster access to long-term care facilities, and it can provide access to a retirement home if necessary," Figas adds.

LIBERTY HEALTH INTRODUCES NEW COVERAGE FOR HOME CARE

Liberty Health has introduced a new policy that covers care in the home, but does not provide for housing in a facility.

The HomeCare Plus policy provides up to $100 per day (Basic Coverage, up to a lifetime limit of $50,000) to offset the cost of in-home care should you become ill or disabled.

HomeCare Plus is available to anyone between the ages of 21 and 75 (coverage continues for life). The criteria for payment of benefits to an insured person are similar to those under the long-term care plans. To be eligible for in-home care, the claimant would have to be unable to perform two or more of the basic activities discussed in the accompanying article.

HomeCare Plus policy benefits can be applied towards most kinds of in-home assistance, therapy or medications. If you die without making a claim, a special "Return of Premium" add-on provides for all premiums to be remitted to your beneficiaries.

Once insured, the premiums remain permanently based on your age and health upon enrolment (although the premium scale may be increased periodically). Current rates for the Basic Coverage range from $28.20 a month for males aged 21 to 39, to $83.20 a month for females aged 70 to 75. With the Return of Premium benefit, the corresponding rates are $30.30 and $128.60 respectively.

Premiums for Enhanced Coverage are considerably higher. A female aged 55 to 59, for example, would pay $136.30 a month, or $166.85 with Return of Premium. It is much higher at an older age, with a female 70 to 75 paying $333.70 per month. The Return of Premium benefit would boost that figure to $519 per month.

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