Considering Long Term Care Insurance When Discussing Retirement Plans With a Client

by Jack Comeau


In my previous post, I briefly discussed the topic of how a client’s financial capacity to take on risk should always be considered when financially advising a client. I now would like to jump to a rather different topic and discuss my thoughts on how a financial advisor, like myself, can shape the strongest and most suitable retirement plan for his or her clients. Specifically, I would like to discuss whether or not the addition of Long Term Care insurance is worth the monetary investment in order to better preserve a client’s wealth and quality of life once they reach retirement age.

Many of us have read news articles in the last several years about how an increasing amount of Canadians are choosing to work past retirement age. In some cases, this stems from an actual choice, i.e. the retiree simply enjoys the work that he or she does and, therefore, decides to work past retirement age. In other cases, the decision to work past retirement age is more of a financial mandate stemming from the reality that there are not enough assets in a person’s retirement account to allow for a work-free retirement. Hence, individuals in this scenario continue working at their companies or pick up part-time jobs to help pay the bills.

As many of us who work in the financial sector know, Canadians who were near or of retirement age in 2008 were particularly affected by the financial meltdown of that year and the recession that followed it. Pension plans took an enormous hit and, following that, the Bank of Canada pulled down interest rates.

Now in a long-standing attempt to revive the Canadian economy, the Bank has refused to raise interest rates back to their pre-recession level. Yes, there was a slight respite in low rates this year. Unfortunately, any hope for a continued increase was quickly wiped away when the Bank of Canada came out in October with a statement saying that they had no plans for raising interest rates further.

Needless to say, conditions such as these make it even more critical that assets are not only set aside for retirement, but that they are adequately preserved and protected. Of course, there’s a host of tools and measures that can help in the goal of protecting retirement assets. But, for the purpose of this article, I’d like to briefly discuss one particular tool, and that’s the addition of Long Term Care Insurance (ILTC) to an individual’s financial portfolio.

What is long-term care insurance? Simply put, it is insurance specifically designed and bought for the purpose of helping fund the cost of long-term care. It’s a form of insurance intended to help pay for such services as home care and assisted living care; two types of care that are not covered by traditional health insurance or any other sort of national insurance. That’s a very important fact to consider.

The reality is that we are currently seeing two trends forming that are in many ways opposed to one another: one, we are seeing Canadians on average living longer than ever before; on the other hand, with the financial meltdown of 2008 and the slow economic recovery, topped off with low interest rates, we are seeing retirement funds being stretched thin on a more frequent basis.

I think it’s for this reason why the addition of long-term care insurance can be such a wise add-on to an individual’s financial portfolio. The fact is that with people living longer, there’s a greater chance that at some point in a person’s life, long-term care will be needed. This can be extremely expensive, and, without something like long-term care insurance to fund it, retirement funds will be the assets used to pay for this care. This has the chance of completely draining retirement funds, or at least, significantly reducing them, which are two scenarios that, as financial advisors, we’d like to have our clients avoid.