Long term care insurance

Long term care insurance is an insurance policy that covers some of the costs of long term care (LTC). Such costs are typically not covered by health insurance and include help with the activities of daily living. LTC it is focused on caring rather than curing. The insurance is targeted at the newly retired and soon-to-be retired population, whereas disability insurance is for the working population.Boyer MM, De Donder P, Fluet C, Leroux M, Michaud P (2019) A Canadian Parlor Room-Type Approach to the Long-Term-Care Insurance Puzzle. Canadian Public Policy, 45(2), 262-282, also available in working paper version, viewed Arpil 4, 2024.
After a brief overview of that long term care is and the need to plan for it, this article provides information on LTC insurance, and a discussion on whether you need the insurance or not.
==Overview of long term care==
Long term care includes assistance with the Activities of Daily Living (ADLs) such as eating, bathing, dressing, transfering (e.g., getting in or out of bed), grooming, and so on. It can also include help with the Instrumental Activities of Daily Living (IADLs) which includes things like using the telephone, taking medications, managing money, shopping for groceries, preparing meals, etc.
Long term care (LTC) is not part of universal public health coverage in the Canada Health ActHealth Canada, Long-term facilities-based care, modified October 1, 2004, viewed April 4, 2024.; different provinces and territories offer different levels of support, but there will almost always be out of pocket costs involved. Those costs can represent a major spending shock for retirees, perhaps the biggest possible contingency that retirees can face, hence the need to plan for it.
The two main funding options are commercial LTC insurance, and using dedicated wealth (self-insurance).
==LTC insurance basics==
===Types of policies===
Long term care policies generally fall into three classifications:The Council on Aging of Ottawa, Long Term Care Insurance in Canada: What is it and do I need it?, 2008, viewed March 7, 2024 (note that this guide predates several insurance companies exiting the LTC insurance market)Investment Executive, Get ready for a boom in long-term care insurance, September 27, 2010, viewed April 7, 2024.
*Reimbursement policies, where you are simply reimbursed for long term care expenses, typically up to designated limits.
*Indemnity policies, where the eligible benefit is paid when qualified expenses (actual care) have occurred.
*Income policies, also know as cash or disability plans, where the eligible benefit is paid without the requirement that qualified expenses (actual care) have occurred.
There are pros and cons associated with each type of policy that should be considered. For example, the Council on Aging of Ottawa considers that income policies are the most flexible and easy to administer, but also the most susceptible to fraud and the most prone to elder abuse.
===Are premiums guaranteed?===
Most policies guarantee flat premiums for 5 years. After that, premiums can go up every 5 years. According to the Council on Aging of Ottawa, "if claims become higher than planned for, an insurance company can raise premiums for the entire class of policyholders. However it cannot raise individual policyholder’s premiums because of health status or age". An example is that in 2016, Sunlife rose premiums by between 1% and 25%.Investment Executive, Insurance: Prices on the rise, September 17, 2015, viewed April 7, 2024.
===When will payments start?===
With an income-type policy, payments typically only start when "you are unable to perform two or more activities of daily living and you require professional assistance at home or in a long-term care facility".Rino Racanelli, Long-Term Care Insurance, Canadian MoneySaver, February 2010 issue Some policies require you to be unable to perform more than two activities, which means that qualifying for benefits will be much more difficult.
Activities of daily living include: bathing, dressing, eating, maintaining continence, toileting and transferring (getting in and out of bed or a chair).Canadian Life and Health Insurance Association (CLHIA), A guide to long-term care insurance, viewed March 19, 2024 Another benefit trigger is "cognitive impairment" or mental incapacity. According to the Canadian Life and Health Insurance Association (CLHIA), your ability to perform those activities would be "assessed by representatives from the insurance company to determine your eligibility for benefits".
CLHIA explains that "most plans include a waiting period. This means once you qualify for benefits, you must wait a specified period of time before your benefits will be payable. Common waiting periods are between 30-90 days." Some plans have waiting periods of up to 2 years (e.g., Sunlife, Sun Retirement Health Assist, viewed March 25, 2024).
==Is it popular?==
Less than 1% of Canadians are covered by a long term care insurance policy according to one source.evidencenetwork.ca, The real costs of long-term care for Canada, viewed March 19, 2024. A survey of 50 to 70 year old people in Quebec and Ontario yielded a 11.5% rate of people "having some sort of LTC insurance coverage", but that includes collective insurance through employers and some respondents may have confused disability insurance with LTC insurance, since "LTCI is almost non-existent in employees’ benefit packages in Canada".Boyer M, De Donder P, Fluet C et al. (2019) Long‑term care risk misperceptions. The Geneva Papers on Risk and Insurance - Issues and Practice 44:183–215, working paper version available on SSRN, viewed May 26, 2024. A stricter definition of coverage (excluding doubtful cases) gives a take-up rate less than 2%..
Potential explanations for this lack of popularity include:MacDonald BJ, Wolfson M, Hirdes JP (2019) The Future Cost of Long-Term Care in Canada, National Institute on Aging (Toronto Metropolitan University), viewed April 4, 2024.
* a false expectation that this care, like physician and hospital care, is fully funded and provided by government
* a lack of knowledge about LTC costs
* a lack of knowledge that LTC insurance even exists, or very low knowledge about the product
* "restrictive rules regarding the use in Canada of an individual’s medical information in insurance underwriting"
* adverse selection (only people who think that they will need LTC buy the insurance, driving up prices)
* lack of availability, and lack of competition, with many insurers having exited the market
* insurance, if available, is too expensive given the perception of the risk
* "it is relatively easy to ask help from family members, and children and relatives often feel uncomfortable to say no"
One financial planner interviewed by the Globe and Mail commented that long term care insurance (traditional income policies) was "very expensive" and that "the cost of coverage requires individuals or couples to often trade off some other very important things that they are allocating to, such as retirement savings".Augusta Dwyer, Should you buy long-term-care insurance?, The Globe and Mail, February 3, 2016, viewed February 1, 2017 Another concern was that "once a buyer has been approved by a carrier, premium prices can go up", which means that the coverage may need to be reduced to keep it affordable, or perhaps even the policy cancelled.
In a US study, a quarter of LTC policy holders who were admitted to a nursing home had let their policy lapse, perhaps inadvertently, during the previous four years.Pfau WD (undated) Concerns and Risks for Traditional Long-Term Care Insurance, viewed March 21, 2024, US content So after paying LTC insurance premiums for many years, they were not insured anymore when they needed it, perhaps in some cases because cognitive decline had started and they forgot to pay the premiums.
==Who offers LTC insurance in Canada?==
===Traditional LTC insurance===
Traditional LTC insurance (income policies) had a number of features that made it unpopular:PWL Capital, Should we care about Long Term Care?, July 18, 2018, viewed March 19, 2024.
* Coverage was subject to strict underwriting conditions. 
* Asthma and sleep apnea were just two conditions that would preclude coverage. 
* By age 61 only half of applicants met the underwriting conditions.
* Coverage was limited to 2-5 years in many policies, so the most worrying case of extended LTC would only be partially covered
There are very few insurers, if any, still offering traditional LTC policies as stand-alone product in CanadaLSM Insurance (a broker), LTC insurance, viewed March 19, 2024. so there is a severe lack of competition. The following insurers have exited the market: 
*RBC Life Insurance in 2012Investment Executive, Manulife drops LTC, December 1, 2017, viewed April 7, 2024.
*Manulife in 2017, citing "limited market acceptance of the product, as well as new federal laws that restrict insurer access to medical information"Investment Executive, Manulife backing away from LTC insurance in Canada, November 6, 2017, viewed April 7, 2024., in particular genetic testing
*Desjardins, who was one of the two largest providers of LTC insurance in Canada, in 2018Investment Executive, Desjardins to end sales of LTC insurance, December 11, 2017, viewed April 7, 2024.
*Sunlife stopped selling its traditional LTC product in 2021Insurance portal, Sun Life drops one of its Long Term Care products, June 9, 2021, viewed April 7, 2024. 
*Blue Cross dropped its "Tangible" product in 2021Insurance Portal, Blue Cross curbs sales of three individual products, May 16, 2023, viewed April 7, 2024.
===What is still available===
The following possibilities remain:
* hybrid products that combine LTC coverage with permanent life insurance or another type of insurance.Investment Executive, Making LTC insurance more accessible, January 15, 2014, viewed April 7, 2024. Examples include:
:-Desjardins: "LTC Advance option"Brian So Insurance (an insurance advisor), Product review: Desjardins Life with LTC Advance, undated, viewed May 21, 2024.
:-IA: "Life and Serenity 65"Financial Wisdom Forum, Life and Serenity 65 from Industrial Alliance (IA), May 23, 2024, viewed on the same date.
* LTC conversion options on other types of "living benefits" insurance like disability or critical illness (RBC, Manulife)
* an LTC 'lite' product from Sunlife with "a simplified application process, less generous features and lower premiums"; see Financial Wisdom Forum, The “Sun Retirement Health Assist” insurance option, April 1, 2024. for forum discussion
==Do you need insurance?==
Not everyone will live in a long term care facility before they pass. Among those who will, some might only stay a short time, whereas others will be there for many years, with large total costs which could deplete all of their savings. In other words, the total costs of long term care are not knowable in advance. This sounds like a case where insurance could help by pooling the risks. But adoption of LTC insurance has been low, there are several issues with it, and very few companies are still offering it. 
The alternative to LTC insurance is self-insuranceMargot Bai, Long-Term Care Insurance, Canadian MoneySaver, May 2010 issue, viewed January 22, 2017, i.e. using your wealth in contingency planning. If you have substantial financial assets, you may be able to self-insure for some LTC expenses, perhaps up to covering the possibility of living in a long term care facility for a significant time. One advantage of this method is that you may also use these private savings to purchase services such as "house cleaning, grocery shopping, transportation, and even home care" that are not, or may not be, covered by long term care policies, but may be needed to stay in your own home longer. 
Some people also look at a mortgage-free home as a source of funds for long-term care (by selling the home or taking a reverse mortgage). And if you die without having required long term care services, then your assets (financial or real estate) will be passed down to your heirs, whereas with traditional LTC insurance, your premiums are gone.
===LTC insurance versus home insurance===
Vettese (2016)Vettese F (2016) The essential retirement guide: a contrarian's perspective. Wiley, 270 p. (ISBN 1119111129) devotes two chapters to long term care and LTC insurance. He compares LTC insurance with home insurance. With both LTC and a house fire, the odds of an expensive event are low, but the consequences are potentially large. With home insurance, 
* the potential losses are clear and quantifiable
* the deductible can be set high if desired
* any loss in excess of the deductible will be covered (up to the limit, but the home reconstruction value is quantifiable) 
* the premiums are reasonable relative to the coverage
* you can change insurer if your premiums rise
With LTC insurance,
* the potential losses are difficult to estimate
* the premiums can rise
* in many policies, there is no guarantee that the entire cost of LTC will be covered
* the deductible is low (coverage often starts after a relatively short waiting period, although see above)
* the premiums are rather high
* you can't easily change insurer (LTC insurance is a long term commitment)
==References==
==Further reading==
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==External links==
*The Council on Aging of Ottawa, Long Term Care Insurance in Canada: What is it and do I need it? (note that this 2008 guide predates several insurance companies exiting the LTC insurance market)
*Toronto Star, Long-term care insurance can be expensive: Building the costs of long-term care into your retirement plan may be more cost-effective than buying long-term care insurance
Category:Insurance