Canadians want LTC, but still aren’t buying: Survey

Canadians are worried about their long-term health care needs in retirement, even though their uptake in buying long-term care insurance remains relatively flat, according to a survey conducted for Manulife Financial.

The survey found that 57% of respondents were worried about their ability to afford either home care or a health care facility in their retirement. Yet only 21% of respondents have factored their long-term care needs into their retirement plan.

A vast majority (81%) of the respondents do not have LTC coverage and intend to fund their health care costs from their retirement savings or income if it becomes necessary.

Toronto-based CFP and living benefits specialist Mark Halpern, founder of illnessPROTECTION.com, says the cost of out-of-pocket long-term care will be high, if not astronomical.

“We can’t rely on government to take care of us in old age. We are living longer, have fewer, more mobile children to rely on, so we need to think about how we’re going to enjoy a good quality of life,” says Halpern. “If someone is forced to pay for long-term care out of their after-tax savings, there could be considerable loss to estate value, and funds may be completely depleted. A long-term care facility costing $4,000 per month over 10 years adds up to nearly $500,000.”

There are a number of theories about why LTC needs and LTC sales have not stayed in step. Insurers claim that neither investors nor advisors understand how the product works or how important it can be.

Paul Smith, vice-president of marketing and product development at Manulife, says LTC is a much more established product in the U.S., partly because of the higher cost of health care there. He notes Canadians are not likely going to be satisfied with the long-term care the public system provides.

“There is still a pretty big need in Canada. The public health care system doesn’t pay for all your costs. It varies from province [to province] in how much the government pays and the level of care you get,” Smith says. “The problem in Canada is if you rely solely on government, you don’t really have a choice in what kind of care you receive. You get what’s available and that’s it. You get what’s available in terms of home care support, or you get what’s available in terms of a spot in a long-term care facility. What long-term care insurance allows you to do is supplement that care with a higher level of care.”

For boomers, there is another problem. Not only would the coverage help them, but many also have elderly parents in need of care, he says.

“There will be a 50% increase in the number of people over the age of 80 over the next 10 years. There is going to be a lot more people who move into the phase of their life [where they may need LTC] if they’re not already there,” Smith says. “It’s probably too late for them to buy long-term care insurance, but their middle-aged kids who are going through this process are going to have a real attachment to the [LTC] cause.”

Recognizing this opportunity, Manulife launched a new LTC policy on Thursday, despite current apathy toward LTC.

LivingCare offers coverage that can be shared by spouses, rather than couples having to purchase two different policies. Only one spouse has to go through the initial underwriting process.

Manulife is targeting the 45 to 65 age bracket, as coverage becomes much more expensive after age 65.

“It’s actually a lot cheaper than you think if you buy it at the younger ages,” Smith says. For a 50-year-old woman to purchase a $150,000 LivingCare policy today, including lifetime inflation protection, the cost would be about $150 per month.

Manulife is not the only company breathing new life into living benefits. In June, RBC Insurance launched a critical illness policy that can be converted into long-term care. Recently, Blue Cross launched its Tangible line of policies, which, in addition to CI policies, converts Term-100 life and disability policies into facility care coverage.

The hybrid policies are a way for clients to buy traditional insurance products that generally become obsolete at retirement, but then have their premiums working for them to provide LTC coverage, usually with no additional underwriting.

The flexibility of hybrids is one way of increasing the appeal of LTC, but Bill Walker, manager of individual products for Ontario Blue Cross, says increased LTC demand will ultimately depend on increased client and advisor education.

“LTC sales have struggled a bit, but our view is that the need is there, and it will become greater,” he says. “It’s the responsibility of the insurer to promote these products to the customers, via advertising or whatever other kind of marketing they use because public awareness and insurer education of the advisor will be the key to selling these products.”

The Manulife survey, conducted by Market Probe Canada, consisted of a sample of 1,000 Canadians between the ages of 35 and 75.

Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com

(11/09/07)

Mark Noble