Last month I wrote about statistics and facts relating to why long term care insurance (LTCi) is a valuable insurance product for most of us to own.
If you have not read my August article please read it, in fact all of my articles are online at virtual.canoe.ca (choose “Barrie Business” under “Publishers”). There are many companies that offer LTCi and critical illness insurance so what follows is for illustration purposes only.
Comparing Critical Illness/Long Term Care
The need for living benefits has dramatically increased over last decade and will continue to grow. This type of protection is necessary as a solid foundation for most financial planning. The increased costs of medical requirements, out of pocket expenses, medical advancements and longevity make living coverage a more than likely need. These types of benefits are the only way many can truly afford to get sick or injured and still maintain a quality of life for them and their family.
I am often asked which coverage is more valuable or more worth while. There are a number of factors that need to be considered; age, means, health and family history but my answer is generally both. That may seem like a simple push for just one more level of coverage but I contend a balance or diversified portfolio containing both would be a better choice for most. We have a lifetime to protect and the need/risk only increases with age. Critical illness insurance is much more common, has more providers, and more advertising. Long term care insurance is still new to the Canadian market with limited offerings and exposure. Don’t let that fool you. Long term care has been in the U.S. and other countries for some time and is one of the most popular types of coverage.
As Canadians, we are cautious, and have traditionally been quite slow in accepting new financial planning instruments. Both types of coverage protect you while alive and face a life adjusting issue. Critical illness is there to provide you with a lump some when first diagnosed with a listed condition. The sum can be used for any needs you face. Although, the missing part is that this policy is for the up front or initial costs of a life threatening condition but not many injuries, surgeries, serious arthritis or natural deterioration.
The most common diagnostic age is 48, with a survival rate for many conditions as high as 85% and with a future of 40 years of continued life, long term care insurance is a prudent consideration to fill in the gap. The illness or injury does not have to be permanent and one may claim numerous times throughout a lifetime. The combination of these benefits provides you with a complete financial safety net throughout all stages of life.
Looking into a well balanced living benefits portfolio will better protect your dignity, choices and financial stability. Protection planning is a cost effective way to ensure you have the money and choice available when a situation arises. Benefits are there to protect you in case a situation leads to financial crises — what situation will affect you is the only unknown therefore a blanket of protection is your best option.
When comparing costs, there are factors which will determine the best options for your individual situation — age, budget, health. As we age, the division of coverage may be adjusted. Analyses should be based on your individual needs. The figures I am using here are strictly for illustration purposes.
MALE AGE 40
OPTION A — COMBINATION PLAN
Critical illness with single benefit of $100,000
Annual premium $1,300
Long term care that will pay an annual benefit of $52,000, with no limit
Annual premium $971
Total premium of $2,271 per year provides $100,000 lump sum on diagnosis of a covered condition and $1,000 per week for need of care, unlimited for life.
OPTION B — CRITICAL ILLNESS ONLY
Critical illness with single benefit of $250,000
Annual premium $3,075
FEMALE AGE 40
OPTION A — COMBINATION PLAN
Critical illness with single benefit of $100,000
Annual premium $1,126
Long term care that will pay an annual benefit of $52,000, with no limit
Annual premium $1,316
Total premium of $2,442 per year provides $100,000 lump sum on diagnosis of a covered condition and $1,000 per week for need of care, unlimited for life.
OPTION B — CRITICAL ILLNESS ONLY
Critical illness with single benefit of $250,000
Annual premium $2,654
HYPOTHETICAL CLAIM
Client is in a boating accident at age 42 and breaks back. The person is paralyzed for life and lives until age 63.
Option A — The person collects $100,000 at diagnosis/accident and receive $52,000 each year while alive. From age 42 to 63 the LTCi would pay out $1,092,000. Total $1,192,000
Option B — Collection at age 42 of $250,000
MALE AGE 50
OPTION A — COMBINATION PLAN
Critical illness with single benefit of $100,000
Annual premium $2,411
Long term care that will pay an annual benefit of $52,000, with no limit
Annual premium $1,530
Total premium of $3,941 per year provides $100,000 lump sum on diagnosis of a covered condition and $1,000 per week for need of care, unlimited for life.
OPTION B — CRITICAL ILLNESS ONLY
Critical illness with single benefit of $250,000
Annual premium $6,200
FEMALE AGE 50
OPTION A — COMBINATION PLAN
Critical illness with single benefit of $100,000
Annual premium $1,925
Long term care that will pay an annual benefit of $52,000, with no limit
Annual premium $2,239
Total premium of $3,941 per year provides $100,000 lump sum on diagnosis of a covered condition and $1,000 per week for need of care, unlimited for life.
OPTION B — CRITICAL ILLNESS ONLY
Critical illness with single benefit of $250,000
Annual premium $4,587
HYPOTHETICAL CLAIM
Client has a stroke at age 58 and is left with permanent paralysis on the right side. The client goes through eight months of rehabilitation and a long term need for assistance with normal activities until age 73.
Option A — There would be a collection of the critical illness $100,000 benefit at age 58 for the diagnosis of stroke and would collect an additional $780,000 for the 15 years of assistance from the LTCi policy. Total $880,000
Option B — Collection at age 58 of $250,000
MALE AGE 60
OPTION A — COMBINATION PLAN
Critical illness with single benefit of $100,000
Annual premium $5,106
Long term care that will pay an annual benefit of $52,000, with no limit
Annual premium $2,733
Total premium of $7,839 per year would provide a lump sum of $100,000 on diagnosis of covered illness and $1,000 per week for need of care as long as it is needed.
OPTION B — CRITICAL ILLNESS ONLY
Critical illness with single benefit of $250,000
Annual premium $12,285
FEMALE AGE 60
OPTION A — COMBINATION PLAN
Critical illness with single benefit of $100,000
Annual premium $3,602
Long term care that will pay an annual benefit of $52,000, with no limit
Annual premium $4,135
Total premium of $7,737 per year would provide a lump sum of $100,000 on diagnosis of covered illness and $1,000 per week for need of care as long as it is needed.
OPTION B — CRITICAL ILLNESS ONLY
Critical illness with single benefit of $250,000
Annual premium $8,648
HYPOTHETICAL CLAIM
Client has an accident skiing at age 62 and breaks femur and needs help for six months, and at the age of 74 battles cancer and recovers after one year and at age 86 needs help due to natural aging until death at age 93.
Option A — would collect for 1st case at age 62 through the 6 months from the LTCi of $26,000, then at age 74 collections on both, critical illness benefit of $100,000 and $52,000 for the year of care and at age 86 to 93 through LTC $364,000. Total $542,000
Option B — Collection at age 74 of $250,000
THINGS TO THINK ABOUT
Individually owned health insurance puts you in control of your future by having a plan in place to look after your health care needs without having to rely on retirement savings.
Please keep in mind not everyone can qualify for insurance so, before going through the underwriting process, its best to go through some pre-qualifying questions. If that goes well, then you can start the application process.
Insurance costs less and is easier to qualify for when you’re young and healthy — so don’t wait!