Protection against the rising cost of long term care

As inflation rates continue to increase, individuals are becoming more and more concerned about the rising costs of everyday life. But one rising cost that isn’t being discussed enough is the increased expenses people may face for their long-term care.

According to a 2021 report by the Canadian Institute of Actuaries, the average annual cost of a semi-private room in a Canadian nursing home is over $80,000, which represents a significant increase from just a few years ago.

The report also noted that the cost of in-home care has also been increasing, with the average hourly rate for a home health aide in Canada now around $30 per hour.

The rising cost of long-term care is a significant concern for many Canadians, particularly those who are nearing retirement age. As individuals age, their risk of needing long-term care increases, and with the rising costs associated with this care, many individuals are finding it difficult to afford without depleting their life savings.

Long-term care insurance (LTCI) is not overly popular in Canada but with inflation climbing dramatically, now is the time to give it a second look. LTCI is an important financial tool for those who want to protect themselves from the high costs associated with long-term care.

LTCI provides coverage for a wide range of services and supports for individuals who need assistance with activities of daily living, such as bathing, dressing, and eating. These services can be provided in a variety of settings, including nursing homes, assisted living facilities, and in-home care.

One of the challenges facing Canadians who are considering LTCI is the impact of inflation on their coverage. Traditional long-term care insurance policies provide coverage for a fixed amount of money, which may not be sufficient to cover the rising costs of long-term care due to inflation. As a result, many individuals are finding that their coverage is not keeping pace with the actual cost of care.

To address this issue, individuals should consider purchasing long-term care insurance policies that offer inflation protection. These policies provide coverage that increases over time to keep pace with the rising costs of long-term care. There are several types of inflation protection available, including:

• Simple inflation protection: This type of policy provides coverage that increases by a fixed percentage each year. For example, a policy with three per cent simple inflation protection would provide coverage that increases by three per cent of the base amount each year regardless of what inflation is actually doing.

• Compound inflation protection: This type of policy provides coverage that increases by a percentage that is based on the previous year's coverage. For example, a policy with three per cent compound inflation protection would provide coverage that increases by 3% of the previous year's coverage and not the initial amount.

• Consumer price index (CPI) protection: This type of policy provides coverage that increases based on changes in the consumer price index. This is a measure of the average price of goods and services purchased by consumers.

In addition to considering policies with inflation protection, individuals should also be aware of the potential risks associated with traditional long-term care insurance policies. These policies may have strict underwriting requirements, which can make them difficult to obtain for individuals with pre-existing conditions. Additionally, some policies may have high premiums, which may be unaffordable for some individuals.

One alternative to traditional long-term care insurance policies is a hybrid policy that combines long-term care insurance with life insurance or an annuity. These types of policies provide a death benefit if long-term care is not needed, while also providing coverage for long-term care if it is needed. Hybrid policies may be a good option for individuals who are concerned about the risks associated with traditional long-term care insurance policies.

The rising cost of long-term care in Canada is (or should be) a significant concern for many individuals. As inflation rates continue to increase, it is important to reconsider the type of long-term care insurance coverage that is needed.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.