Introduction to Long-Term Care Insurance
Long-term care insurance is a type of insurance that helps cover the cost of care when you can no longer perform daily tasks on your own. According to Van Alphen, the payment of the Sun Life plan is triggered if the insurance owner cannot carry out two out of six activities for themselves, such as bathing, dressing, using the toilet, and feeding. If you cannot move without help or are incontinent, you may also be eligible for payments. Other plans can have an upper limit for payments.
How Long-Term Care Insurance Works
The insurance company will assess your ability to perform daily tasks and determine if you are eligible for payments. The payment amount and duration will depend on the specific plan you have chosen. Some plans may have a waiting period before payments begin, which can range from 30 days to several years.
Cost of Long-Term Care Insurance
The cost of long-term care insurance has changed over time. In the past, premiums were higher because the benefits were richer and the waiting period was shorter. Today, premiums are generally lower, ranging from $1,000 to $2,000 per year, but the waiting period is longer, typically one to two years. If the policyholder dies before receiving payments, the premiums will be returned to the beneficiary.
Pros and Cons of Long-Term Care Insurance
There are both advantages and disadvantages to long-term care insurance. The pros include:
- Coverage for most services you may need
- Guaranteed payments for your lifetime with some plans
The cons include: - Expensive premiums
- Longer waiting times for access to payments
- Costs for some plans
Alternative Options for Long-Term Care Financing
Another option for financing long-term care is a reverse mortgage. A reverse mortgage can provide the necessary funds to cover care costs without the homeowner having to sell their home. According to Niary Toodakian, Vice President of Homequity Bank, a reverse mortgage can be used to pay for care costs, such as the cost of a personal support worker, age-related technology solutions, and home retrofits for accessibility.
How a Reverse Mortgage Works
A reverse mortgage is a loan against the value of your home, available to Canadians aged 55 and older. You can receive up to 55% of the value of your home and receive a lump-sum payment or monthly payments. This income will not affect your Old Age Security (OAS) or Guaranteed Income Supplement (GIS). You have the option to repay the borrowed amount plus interest during your lifetime.
Pros and Cons of Reverse Mortgages
There are both advantages and disadvantages to reverse mortgages. The pros include:
- Receipt of a lump-sum payment if needed
The cons include: - Repayment of the borrowed amount plus interest if you sell, move out, or die
- Potential for reduced funds for support compared to downsizing
Paying for Long-Term Care with Personal Savings
You can also save for long-term care costs by setting up a savings plan in your financial plan. One possibility is to redirect money into the plan after paying off debts, such as a mortgage or student loan. You can also maximize your Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA). If you need to enter a long-term care facility and do not have a surviving spouse, you may be able to pay for care by selling your home.
Pros and Cons of Personal Savings
There are both advantages and disadvantages to using personal savings for long-term care. The pros include:
- Control over your own money
The cons include: - Risk of not saving enough
- Risk of financial abuse if you have not appointed a power of attorney before becoming physically and mentally affected
Conclusion
Long-term care insurance, reverse mortgages, and personal savings are all options for financing long-term care. It is essential to speak with a financial advisor to determine what you can afford, what type of care you want to receive, and where you prefer to receive it. By making informed financial planning decisions, you can live comfortably in your older age. Regardless of which option you choose, it is crucial to plan ahead and consider your long-term care needs to ensure that you receive the care you need and maintain your financial security.