CANADA: Seniors Will Need Long-Term Care Insurance in Old Age

MONTREAL (The Gazette), July 30, 2007: If it is in your plans to live to a ripe old age, there is a high probability you will need long-term- care assistance that would include such services as the use of a rehabilitation centre following a stroke, a move to a seniors' home or in-home care by registered nurses, comments John Archer, an investments advisor, in The Gazette. The question is: How will you pay for these services beyond the costs or facilities provided by government plans? Your choices will be clear: by accessing your accumulated savings, liquidating assets (such as selling your home) or through family support. Alternatively, given the eventuality of such an expense, you may wish to consider purchasing long-term-care insurance that will provide you with the income required to cover these expenses when you need it. Long-term-care insurance is one of the fastest-growing segments of the life-insurance industry. With an aging population and medical costs skyrocketing, taxpayers can reasonably begin to question exactly what types of services will still be available when it is their turn to be cared for. Providing your own safety net via long-term-care insurance, therefore, seems to be a reasonable option. Even under our current system, have you ever walked into a seniors' home that is provided as an option under the government plan? Sure, they may be adequate, but do they necessarily meet your own standards of what you hoped settling into old age might look like? If not, have you recently priced the cost of private or semi-private facilities? A monthly rate for a moderately priced facility might run $3,000 per month or $36,000 per year (after tax). The higher-end ones can cost $6,000 per month or $72,000 annually. In-home nursing care can be just as expensive. It is clear how quickly one's assets might be tapped to meet these long-term-care expenses. However, there is a creative way to protect your assets while providing you with long-term- care insurance protection. This is through the use of a so called "back-to-back" annuity concept. This strategy allows you to dedicate a portion of your assets toward an annuity that will fund the insurance premiums of a long-term-care insurance policy as well as a life-insurance policy so that while living, you enjoy the security of the insurance protection and, at death, your estate is refunded the capital surrendered for the annuity purchase. Here's how this concept might work for a 60-year-old male non-smoker (female rates are similar). He invests $200,000 in a prescribed annuity that pays $1,225 per month. A small portion of this income is considered taxable, so his estimated net monthly income is $1,002. From this he pays a $362 monthly premium for a $200,000 life-insurance policy (at death his beneficiaries will receive a $200,000 death benefit tax-free to replace the capital used for the annuity purchase). In addition, a monthly premium of $194 is paid from the annuity for a long-term- care policy with a potential daily care benefit of $100 ($3,000 monthly). In this example, if the long-term-care benefits are never used, all long-term-care premiums also are refunded at death. In addition, if you add up all the numbers in this example, the net income is slightly higher than compared to what a $200,000 term deposit or bond investment earning five-per-cent interest might generate. So, essentially, you are not sacrificing a decline in income while providing yourself with "free" long-term-care insurance. © The Gazette (Montreal) 2007