Canada’s population of seniors is poised to balloon in the coming decades, and many members of this demographic are likely to require some form of long-term care (LTC) – a service that carries a hefty price tag.
However, many Canadians are failing to plan for these significant costs, and a product designed specifically to protect against these expenses – LTC insurance – is being largely overlooked by advisors and clients alike.
“Long-term care insurance has never really taken hold in Canada,” says Stephen Frank, vice president of policy development and health at the Canadian Life and Health Insurance Association Inc. (CLHIA).
In fact, the latest statistics from CLHIA show that the number of Canadians with LTC insurance policies has dropped. At the end of 2011, 364,900 Canadians were covered under the plans, down from about 385,000 in 2010. That trend has continued since, according to Frank.
“The number has been declining,” he says, “so the trend is actually going the wrong way on this.”
LTC insurance provides a financial benefit of up to $8,000 per month for individuals who become unable to care for themselves because of a chronic illness, disability, cognitive impairment, or other age-related conditions preventing them from managing a number of the activities of daily living without assistance.
With the cost of LTC in Canada averaging $5,100 per month, according to CLHIA, the insurance protects against an expense that can take a significant toll on a client’s retirement savings over time.
The product was introduced in Canada about 15 years ago, but sales have always considerably lagged other insurance products – such as critical illness (CI) insurance. The weak uptake is partly due to the cost of the premiums, which can be high – especially for older clients.
In addition, many Canadians don’t recognize the need for this type of protection, since they don’t realize that they’ll be on the hook for the cost of care.
“Canadians don’t really understand that they’re going to be accountable for a lot of the costs,” says Frank. “There’s sort of a perception out there that governments will pick this up.”
Furthermore, many Canadians don’t realize just how expensive care can be. A recent survey commissioned by CLHIA revealed that 56% of Canadians aged 60-74 are unaware of the costs of LTC in their province.
The lack of awareness is due, in part, to the fact that many advisors are simply not talking to their clients about the need to plan for long-term care, says Mark Halpern, certified financial planner and president of illnessPROTECTION.com Inc. in Markham, Ont.
“Less than 25% of all advisors have ever sold a living benefits product,” he says. “It’s just not being talked about.”
Given the relatively low sales of LTC insurance, many insurers are not pushing the policies as heavily as they did five years ago, Frank says. In fact, one provider — Mississauga-based RBC Insurance Services Inc. — announced in June 2012 that it was suspending all new sales of LTC insurance.
“There’s not as big a focus on it as there used to be,” Frank says. “That’s just a reaction to the relatively weak demand here.”
Demand for LTC insurance appears to have recently slipped even further, as a result of adjustments to the products. As insurers grapple with low interest rates that have squeezed the profitability of permanent insurance policies such as LTC, some have raised premiums on the products, and others have adjusted product features.
“On average, across the industry, the prices, because of the lower interest rates, would have increased by about 20%,” says Paul Fryer, vice-president of individual business management at Toronto-based Sun Life Financial Inc. However, he says Sun Life has not changed the premiums on its own LTC products.
The changes have caused industry sales to slow down slightly as consumers have adapted to the new offerings, according to Laurel Pederson, assistant vice-president of health insurance products at Sun Life.
However, she says sales now appear to be returning to normal levels, and she suspects that sales will climb steadily higher as the population ages.
“We’re seeing increased awareness of long-term care, and I personally believe it’s going to take off,” she says. “Advisors, as they see the average age of the clients they’re talking to increase, are moving to recognize long-term care insurance as an important discussion to have with people.”
Halpern is similarly encouraged by the prospects in this market. He likens the current state of the LTC insurance market to state of the CI market a decade ago.
“It’s kind of where critical illness insurance was 10-plus years ago,” he says, “but in terms of the potential, I believe it has much more potential than critical illness insurance, just because of the aging population.”
This is the first article in a three-part series on long-term care insurance.
On Wednesday: The growing scope of opportunity in the LTC market.