The wisdom of long-term-care insurance
MONEY 301 | It can be a life saver, but just don't wait too long, writes Ellen Roseman
ELLEN ROSEMAN
Gillian Johnston is just 40 years old, but she's already purchased her long-term-care insurance.
Her premiums are $300 a month for a policy that will pay $10,000 a month if she has to enter a long-term care facility.
"I figure it will cost that much when I get there," she says.
Johnston runs her own insurance business in Toronto. It's only natural she has all the bases covered.
But her passion for insurance comes from her own experience.
"I used to be a tennis pro," she tells me. "I had a tennis school with 25 instructors. Then I got sick and had no disability insurance. I went into debt quickly."
By age 24, she owed $10,000. She hired someone to take over the tennis school and started selling disability insurance to her tennis friends.
Then, she started selling disability insurance to doctors and dentists.
"I served pizza," she says about the seminars she gave to students graduating in these professions.
"No one wants to buy insurance. It's a necessary evil."
Johnston sells life and critical-illness insurance, as well as mutual funds and segregated funds. Today, however, she only wants to talk about long-term-care insurance.
Her parents' experience taught her about the need to save for later life. Both moved into a private long-term care facility, Sunrise of Unionville, in February 2004.
Theresa Johnston, 72, has Parkinson's disease. She needs a walker to get around and requires help with dressing, bathing and eating.
Frank Johnston, 78, has Alzheimer's disease. He's a former surgeon and chief of medicine at Branson Hospital.
They pay $9,000 a month to live there. With the extra costs (foot care, for example, and toiletries), it's $138,000 a year.
Neither has long-term-care insurance.
"My father tried to apply in 2001," his daughter says. "I'd taken him to Branson for a full physical. The doctor's notes in his file worked against him."
Her advice: Don't run to the doctor for a check-up just before you look for a policy.
Johnston did get long-term-care insurance for her aunt, 72, who's still at home.
These policies cover home care, as well as institutional care, if it comes from an accredited agency.
She advocates buying long-term-care insurance for older parents, even if the children have to pay for it.
"At the end of the day, the kids will actually get some of their parents' estate. It's after-tax income that pays for care. You don't want to pull before-tax money out of your RRSP."
Her views about buying the product when you're young aren't shared by everyone.
Those who buy long-term-care insurance at 40 might not need services until they're 75 or 80, says a report by the Kaiser Family Foundation, a U.S. think tank.
Buyers face great uncertainty about their own circumstances and needs many decades in the future. And most policies are tailored to cover specific services in the current environment.
Any changes — such as new supportive housing arangements or prepaid systems that integrate acute and long-term care — could make a specific policy bought today obsolete.
The major market for long-term-care insurance is people at or near retirement age, the report said.
"They have a clearer picture than do younger people of what their resources and needs will be during their retirement years, and they are more likely to be conscious of their possible future need for long-term care."
Stephen Smith bought a long-term-care policy for his wife Val in 1997. She was 60 years old at the time and in good health. Today, she's in the early stages of Alzheimer's disease.
Smith is enormously grateful he bought the policy, which pays up to $200 a day (or $6,000 a month) for caregiving expenses.
Val still lives at home in Port Hope, but goes to a daily care centre in Cobourg.
"The insurance won't pay gas mileage if I drive her there," he says. "But it pays for a taxi, which costs $13 each way."
Smith also needs to pay for private home care. Val gets only four hours a week of government-funded home care, which is far from enough.
The policy has allowed Smith, who's 63, to keep working and running his company, Yorkminster Insurance Brokers Ltd., in Port Hope. He's a life and health-insurance specialist who works with senior executives and many financial advisers.
Ironically, Smith doesn't have his own long-term care insurance policy.
"We bought from Westbury, now RBC Insurance, which was the only game in town at the time. Nobody wants a claim waiting to happen, but I thought it was more likely to be me.
"I applied, but was turned down because I smoke a pipe. The dentist had advised me to stop and I'd started smoking less, but I didn't stop."
Smith was paying $358 a month, or $4,296 a year, in premiums for Val's policy. He started getting benefits just over a year ago.
"We were one of the first claims under a long-term-care insurance policy in Canada. We had a hassle because the company had to hire someone new to look after it."
He had opted for two years of home care, plus lifetime care in an assisted-living facility.
Val's illness has reached the point where she can't stay at home much longer. She's on a waiting list and will be admitted to a long-term care facility soon (at a cost of $2,500 a month).
This will be a relief, Smith acknowledges. His own health has been damaged from looking after her.
Also, he's looking forward to a time when he doesn't have to submit his home-care expenses and wait for reimbursement.
His advice: Look into long-term-care insurance. There are four or five providers in Canada, so shop the market.
Some companies offer a 20-year premium period, after which the policy is fully paid for. Others refund your premiums if you don't make a claim, or allow the policy to be purchased as a rider to a life insurance policy.
"Government-funded nursing homes are not overly nice places," he says. "If you doubt this, visit one.
"If you can afford to pay these costs, then probably you don't need the insurance," he says.
"But if you can't afford it, or it will severely affect your estate planning to do so, you should look seriously at paying a premium to lay off the risk to an insurance company."
Ellen Roseman's column appears Wednesday, Saturday and Sunday. You can reach her by writing Business c/o Toronto Star, 1 Yonge St., Toronto M5E 1E6; by phone at 416-945-8687; by fax at 416-865-3630; or at eroseman@thestar.ca by email.
Additional articles by Ellen Roseman |
