LIFE INSURANCE FUNDAMENTALS:

Plan to Live In the Long Term Care Facility of Your Choice

An article in the July 5th edition of the Vancouver Province made me revisit the issue. It discussed a new retirement community being built in Langley, BC. The article referred to a new buzzword for seniors - "Aging in Place". It gave an example of a couple who had purchased a condominium in this complex for between $84,000 and $170,000. This price range is within reach of many middle income seniors.

As their health deteriorated over time, they could arrange for meals, laundry, household cleaning, and eventually move into an extended care facility that was part of the complex. They would still be close to their spouse who did not need the extended care. In addition, they would not be moved into a strange environment at the time when they need comfort and stability in their life. Their spouse would only be a short walk away.

The big problem was the cost of the extended care facility which was about $4,000 per month - a price, the article said, could only be afforded by the middle and upper income retirees. My experience is that even middle income people will have trouble affording an extra $4,000 per month plus the living costs of the partner who remains at home.

There is an alternative that does make it affordable for the middle income person and it is called Long Term Care Insurance. This insurance will pay up to $200 per day when you have to go into a long term care facility because you can no longer look after yourself. How much does it cost?

In another article, I reviewed how to finance the cost of a stay in a long term care facility for an average of 2.2 years based on a monthly facility cost of $3,500 at that time. A 52-year-old male can purchase $100 per day coverage for about $70 per month and the coverage could be paid up in 20 years. One company only requires 20 years of payments.

My article concluded that you could buy insurance for $70 per month. This $70 would be paid for up to 20 years (you stop paying if you have a claim). An alternative was to build up a contingency fund to cover the cost of 2.2 years of long term care by investing $200 per month for 20 years at an average return of 8.25% - almost three times the cost.

However, these choices were still not even. The insurance will pay the $100 for as long as you live and it will start whenever you need it. Are you sure you will not require it within the next 20 years? Will your length of stay be an average 2.2 years, less than average, more than average? What will happen to the value of your estate during an extended stay? Will you have to rely on your children?

A financial planner can help project the cost of retirement housing and living expenses with some degree of comfort. It is trying to provide for this unknown factor that makes Long Term Care Insurance an important part of the Retirement Planning Processes. Once it is covered through insurance, the remaining funds are freed up to apply to other goals in the financial plan.

Many children are splitting the cost of this insurance to provide security for their parents and to help preserve the estate. Having the insurance also simplifies the decision of when to go into a home.

At what age should Long Term Care Insurance be purchased? While the average age is late 60's, you might want to consider purchasing Long Term Care Insurance in your 50's when other costs are decreasing as children leave home and the mortgage is paid off. I have found that many people are paying for term life insurance to cover the mortgage and needs of children which are no longer required. A more effective use of these funds could be for Long Term Care Insurance.

I can not think of anything we can do to make our life more comfortable when life is most difficult. Having the funds to obtain excellent care will bring peace of mind to both the person going in the care facility of their choice and their loved ones.