Long-term care is perfect, but poorly understood

By Martin Beaudry | October 20 2003 03:34PM

Long-term care insurance is poorly understood, says John Ostaf, founder of the Canadian Academy of Senior Advisors. This is unfortunate, he says, because when combined with critical illness insurance it is a perfect product for seniors.

Sixty per cent of all seniors will need long term care (LTC) or home care, according to Mr. Ostaf, but less than one percent of those 65 and older have a policy. Just 25,000 policies have been sold in Canada, while according to Statistics Canada, the senior population numbered almost 4 million in 2002.

Mr. Ostaf compares the need for LTC insurance to home and auto insurance, noting that the probability of needing LTC or nursing care is much higher than that of having a house fire or a single vehicle car accident. The chance of a fire is about 0.5%, he says, while the odds of a car crash are about seven per cent, and those will cost $26,769 and $2,381 on the average respectively. Compare that to LTC or home nursing care, which can cost between $50,000 to $80,000 per year.

Education is the key

There is no question seniors should buy LTC and critical illness insurance (CI), says Mr. Ostaf, but most will not admit that to themselves and must be confronted with the facts. That is why Mr. Ostaf suggests that the foremost important factor in selling insurance to seniors is education.

First, he suggests advisors educate themselves. He points out wryly that getting a Certified Senior Advisor (CSA) designation from his Academy would be a good start.

Then, advisors should host seminars for potential clients, educating them as to the realities that face them. Point out, for example, that disability insurance usually stops at age 65, or that the average lifespan of someone stricken with Alzheimer’s is eight years.

You can count on CI until age 75, Mr. Ostaf points out, and you win no matter what. If you are one of the 38% of women or one of the 41% of men who will develop cancer during their lifetimes, for example, you are covered. Then, if you have the good fortune to be healthy, your policy lapses and you get your premiums returned. You win either way.

LTC will take care of you when your health breaks down further. Although it is not pleasant to think about, the reality is that most people will not pass away peacefully in their sleep. Most will need nursing or at the least care and assistance with mundane tasks like getting up or down, or going to the bathroom.

If you really want to serve a senior clientele, you need to present the evidence in a logical and pragmatic manner, says Mr. Ostaf. Scare your clients with reality if that is what it will take, and gently persist in insisting they get coverage. LTC coverage is an expensive policy to sell, but it is one of the best ways to insure a senior clientele.

The maximum purchase age for most LTC policies is 80 years of age.

Features to look for

As with all insurance products, it is important to read the small print, Mr. Ostaf points out. Not all LTC policies fit the bill.

First, LTC insurance products usually have an elimination period of 30 to 90 days. A client should select a 30-day term, meaning they will wait just thirty days before the policy kicks in if they need it. It is more expensive, but it is worth it, says Mr. Ostaf.

The policy should include a waiver of premiums. A person incapable of caring for himself or herself fully should not have to keep paying premiums. A waiver of premiums will cancel the need to pay premiums once the elimination period is met.

Some LTC policies offer an inflation option. This adjusts the face amount according to inflation, rising as the cost of living does. It’s a good idea, says Mr. Ostaf, but it is expensive.

Instead, he suggests advisors should counsel their clients to buy a policy with a face value that accounts for the future value of their need. In other words, if their LTC needs cost $100,000 currently but inflation is expected to raise that 10% in ten years, then the client should buy a policy with a face value of 10% more, or $110,000.

An important factor advisors should consider is gender. Some companies price on a unisex basis, while others price by gender. Depending on the sex of your client, this could have a large impact on the premium demanded.

Women statistically need LTC more often and for a longer period of time, asserts Mr. Ostaf. As a result, insurers that price by gender will tend to charge about 30% more to women than to men. Companies that have unisex pricing will usually charge men 15% more and women 15% less.

Strategically, then, an advisor serving a couple should sell a gender discriminating policy to the man and a unisex policy to the woman. This saves them each 15% on the cost of their LTC policies.

Companies to look at

Several companies serve the LTC market. Mr. Ostaf says the major players include RBC Insurance, Clarica, Manulife Financial, Combined Canada, and PennCorp Life Canada.

RBC has a twenty-year payment program, he says. It prices on a unisex basis, so they might be a good place to look to buy LTC for female senior clients. They are trying hard, says Mr. Ostaf, but recent price increases of 60% to 70% have hurt sales and slowed them down.

In the industry, Clarica is by far the fastest growing, Mr. Ostaf asserts. He says the company’s success lays in the fact it specializes. Where it once sold both CI and LTC, more recently it has focused on and specialized with solely LTC.

Manulife has a good product but it doesn’t seem to have much interest in that market, Mr. Ostaf says. They don’t do much marketing for their product, he explains.

Both UnumProvident Canada and Liberty Health (owned by Maritime Life) have revised LTC programs. UnumProvident prices on a gender-specific basis.

Mr. Ostaf is fond of PennCorp. He says it is often overlooked because it is mainly in small towns and cities, but it has a large client base in the Prairies and in the more remote areas of Ontario. He attributes the insurer’s success to its tradition of going knocking on every door.

Emphasize need

At the end of the day, advisors should sell LTC on the basis of benefit and need, says Mr. Ostaf. They should educate themselves and their clients. They should give seminars frequently to show the need, and they should persist steadily but continuously with their sales.

Advisors should debunk the theory that the government will look after a senior’s needs. The reality is that any type of assistance from the government will not only be insufficient but will also diminish the amount of other senior benefits from the government. LTC will not diminish government benefits, and will not be taxed.

High prices will be tough to sell, admits Mr. Ostaf, but even if the client buys less than an ideal amount, it is better than nothing. And, from a more business-oriented perspective, it is a step for the advisor into a vast market!