The Voice of Canadian Credit Unions
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Quality-of-life insurance

Credit unions are beginning to offer a timely new kind of policy

Sep2013-F4-QualityInsurance-[1500x472]No question: people are living longer and it’s affecting their financial futures. The good news is that credit unions have made considerable progress in encouraging sometimes reluctant boomers to save for life after work.

The bad news: just as this group is starting to take the challenge seriously, another realization is hitting home. Retirement years, which can run three or four decades, won’t necessarily all be healthy ones. That means many people will need outside help. In fact, the chances that a 65-year-old will eventually require long-term care — loosely defined as assistance for those who have difficulty performing basic daily functions — are 49 per cent for men and 65 per cent for women, according to industry statistics.

Again, some credit unions are looking to help members prepare. One way permitted in some provinces is by offering insurance products that address the issue. These policies cover contingencies ranging from support at home with dressing, cooking, bathing, rehabilitation and therapy all the way to full-time residential care. Yearly premiums run from $500 to $2,500. The low end applies to a person who begins coverage at age 40 and who has bought the minimum level of benefits. The rates go up for those who want more benefits or are older at the start of coverage. A plan that pays $3,000 a month for four years might cost $2,000 a year for a 57-year-old healthy male. At 62, the same policy might cost around $2,500 annually.

The purpose of long-term care is not to cure but to improve the quality of a patient’s life. Typically, care is “triggered” if policyholders can no longer cope on their own or their mental faculties become limited. Monthly payouts are as low as $1,000 and as high as $9,000 depending on the policy. The average monthly payout is about $2,000.

Nathalie Tremblay, a health insurance product manager at Desjardins Financial Security, which is part of Desjardins Group, Canada’s largest association of credit unions, admits raising the issue of long-term care with clients can be delicate.

“The few Canadians [who] do think about death imagine that it comes instantaneously,” she says. “They don’t realize that many will also go through considerable periods of frailty. Those who recognize this in advance will have a significantly higher quality of life in their later years.”

There is more evidence to suggest that coverage is something Canadians should seriously consider. A recent Public Health Agency of Canada report indicated that healthy life expectancy is significantly shorter than actual life expectancy. Women and men can anticipate living on average 83.6 and 78.9 years respectively, but their Health Adjusted Life Expectancy (HALE) is 72.1 and 69.6 years. That means Canadians may suffer from deteriorating health for a decade or more before they die.

The government’s role

Many just assume that our universal health care system will bail them out, but that’s not the case. Health care is a provincial and territorial responsibility. The federal government provides these jurisdictions with funding as long as they meet basic commitments. For example, provinces and territories must cover their residents for acute care — that is, health problems that could quickly result in death, or that cause severe pain or disability and from which the patient has a good chance of recuperating. Provinces and territories may use whatever excess the federal government has given them as they see fit. They aren’t obliged to cover patients who require long-term care, such as those with chronic and even irreversible illnesses or disabilities.

True, the 13 provincial and territorial governments do use some of the money to fund aspects of long-term care but that help is, literally, all over the map. Financial assistance varies substantially from jurisdiction to jurisdiction and is typically needs based. If a candidate doesn’t meet low-income criteria, however, the cost can be stiff: between $900 to over $3,000 per month to stay in a long-term care facility. Meanwhile, costs for private services vary from $10 to $90 an hour for homemaking, personal care or nursing care, according to Sun Life Financial.

The bottom line? Long-term care in Canada will cost $1.2 trillion (in today’s dollars) over the next 35 years, according to a 2012 report produced by the Canadian Life and Health Insurance Association (CLHIA). Assuming no cutbacks are coming, governments will finance about half. That leaves a massive $590 billion shortfall, equal to just about as much as Canadians presently have invested in individual retirement savings plans.

Long-term care in Canada will cost $1.2 trillion (in today’s dollars) over the next 35 years, according to a 2012 report produced by the Canadian Life and Health Insurance Association (CLHIA)

What’s more, the prospect of fewer long-term-care hospital beds is considerable. In 2011 (the year that the first baby-boomers turned 65), 7,550 provincially funded acutecare hospital beds in Canada — roughly seven per cent — were taken up by individuals receiving long-term care. Because the number of people using acute-care beds is set to explode during coming decades, provinces face a financial crunch. It might give them a huge incentive to push patients out of these beds (which the public sector funds) into long-term care facilities or back home (where individuals and insurance companies pay for assistance, at least in part). As it is, between 2007 and 2011 when long-term care patients were released from hospital, 64 per cent were sent home without any kind of support.

All this means that many Canadians, particularly boomers who are starting to retire in droves, will be facing a large financial burden related to their long-term care.

“Canadians need to be realistic about what assistance will be available to them,” emphasizes Stephen Frank, vice president of policy development and health with the CLHIA. “There is a large gap with respect to what governments have committed to and what the likely need will be.”

Frank is right, but the stark fact is not many people have given long-term care a moment’s thought. A Leger Marketing poll of Canadians aged 60 and over confirmed that about two-thirds of those surveyed had no financial plan to cover ongoing care and 56 per cent were unfamiliar with the cost of long-term care in their province. Nathalie Tremblay adds that existing premiums on long-term care insurance packages totalled a mere $106 million — a pittance compared to the $1.4 billion in premiums on new life insurance packages in 2012. Desjardins’ longterm care insurance products, which are sold directly in the cooperative’s Quebec branches and through Desjardins Financial Security Independent Network in the rest of Canada, account for just 13 per cent of those sales.

A patchwork of regulations

Credit unions are starting to do what they can. But because each province regulates the insurance contracts and trade practices of insurers, laws regarding the sale of insurance at the branch level vary. According to Lorraine Wilson, media relations officer at Vancouver City Savings Credit Union, the British Columbia-based credit union makes long-term care insurance available to clients through its wealth protection specialists (WPS) team. Long-term care is also becoming an important part of some of the broader insurance policies that the credit union markets. Half of Vancity’s branches are currently authorized to sell long-term care insurance products. Other branches refer their clients to Vancity Life Insurance Service, with business done either in the compliant branches or in members’ homes or places of work.

“We do a life needs analysis with members,” says Wilson. “The subject generally gets broached through a full analysis or an insurance review. Long-term care is a product that fills a specific need. Many innovations, such as a long-term care provision within a critical illness policy, have had long-term care or similar type of benefits added to them.”

For its part, the Ontario-headquartered insurance company The Co-operators works in partnership with CUMIS Group Limited to help its credit union clientele market critical illness products. While such policies aren’t as comprehensive as those offering long-term coverage, they do alleviate some long-termcare risks. “Our advisers conduct one-on-one consultations with clients to recommend investment strategies that suit their needs,” says senior media adviser Leonard Sharman of The Co-operators. “A proper financial plan will include consideration of insurance products as well as investments.”

For its part, the Ontario-headquartered insurance company The Co-operators works in partnership with CUMIS Group Limited to help its credit union clientele market critical illness products. While such policies aren’t as comprehensive as those offering long-term coverage, they do alleviate some long-term care risks. “Our advisers conduct one-on-one consultations with clients to recommend investment strategies that suit their needs,” says senior media adviser Leonard Sharman of The Co-operators. “A proper financial plan will include consideration of insurance products as well as investments.”

More work to do

The consensus among credit union professionals is that there is a lot of work left to do on the long-term-care insurance front. According to tremblay, much of it involves training financial advisers in how to raise the subject with clients. “it is a very sensitive topic,” says tremblay. “Nobody wants to even think about the prospect of requiring longterm care, let alone talk about. People assume that they are invulnerable. it is only when they turn around 50 or so that they start to become receptive to the idea.”

As for the CLHIA, the organization believes that government can play an important role in getting the word out about the need to save for long-term care. Among its more interesting recommendations: the introduction of an ResP-type model. Canadians could set up private savings plans to fund these costs and the federal government would also contribute to them.

First things first

The reality is it may well take years before Canadians recognize the importance of preparing for long-term care. First, the ground must be prepared by educators, marketing campaigns and the like. in the meantime, the priority for many advisers remains making certain members have enough life insurance and retirement savings. that’s a form of education in itself. once clients see the wisdom of planning for the future, they’ll likely be more open to other types of vehicles, such as long-term care insurance, that are designed to keep them comfortable and secure in their retirement years. ◊