Insurance needs change with age

It’s a well-known fact that Canada’s demographic makeup is changing. The population is aging and people are living longer and will be spending more on health care as costs continue to rise.

It’s a well-known fact that Canada’s demographic makeup is changing. The population is aging and people are living longer and will be spending more on health care as costs continue to rise.

Currently, 11.5 per cent of the population is above the age of 65. By 2031, approximately nine million Canadians, or 21 per cent of the population, will be 65 or older.

In 2005, the life expectancy of both men and women was 80.4 years. By 2031, however, the average male will live to 82 and the average woman to 86.

As you progress through life, your insurance needs change. As you age, you may want to look at forms of insurance that protect you from accidents and illnesses that you’re more likely to suffer as you get older and that pay out benefits while you are still alive.

Critical illness insurance, for example, is designed to provide a lump sum payment of cash upon medical diagnosis of a specific condition. The number of conditions covered varies depending on the insuring company, but most claims are made for cancer, stroke and heart attack, the three most common illnesses in North America.

Policies can range in value anywhere from $10,000 to $2 million and there are no restrictions on how the cash payment is used. The money could be used for medical treatments, to pay off the mortgage or to top up your retirement reserves. This type of insurance could be considered a baseline product of any financial plan.

Complementing critical illness insurance are disability and long-term care (LTC) insurance, which also provide benefits while you are still alive.

Disability income insurance is designed to replace a portion of your income if you are unable to work for an extended period of time due either to an accident or sickness.

LTC insurance provides an income based on a person’s cognitive impairment and inability to perform activities of daily living, such as eating, bathing and toileting.

According to the Council on Aging, 43 per cent of people over the age of 65 will at some point in their remaining years require long-term care and spend time in a nursing home or LTC facility for an average of three to four years. Twenty per cent will stay more than five years, and for a couple over 65 there is a two out of three chance that at least one spouse will enter an LTC facility at some point in their lives.

Long term care can be expensive, costing anywhere from almost $19,000 a year in a ward to more than $25,000 in a private room in a subsidized facility. The cost to live in a non-subsidized assisted living facility can easily cost more than $40,000 a year when personal care is required.

Only a few insurance companies in Canada sell long-term care insurance policies.

LTC policies are not standardized. You can buy policies that provide coverage for one to five years, buy coverage that provides a pool of money, typically from $50,000 to $300,000, from which you can draw over a lifetime, or you can buy coverage that has an unlimited lifetime benefit.

There are three types of LTC policies.

Reimbursement policies are the least expensive but the least flexible. They simply reimburse some or all of your out-of-pocket long-term care expenses up to your designated daily, weekly or monthly limit.

Indemnity policies remunerate the recipient for the designated daily, weekly or monthly amount provided qualified expenses are incurred. Typically, they pay for actual days when care is received. They are usually well-priced and more flexible than reimbursement plans.

Income policies (or cash and disability plans) will remunerate the designated daily, weekly or monthly limit regardless of whether services are provided. They are the most expensive.

LTC insurance has advantages and disadvantages. Check out the options to see if this kind of insurance is right for you.

Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors. He can be contacted at boggsyourmoney@rogers.com.