Protecting your retirement nest egg: insurance options for aging boomers and seniors offer more than peace of mind

Money Digest, March, 2000 by Kirk Polson

Today Canadians are living longer than in past generations. According to Statistics Canada, those aged 65 and older will represent 16% of the total population by 2015, up from 12% at present. While this is a one-third increase in terms of the total Canadian population, the number of "seniors" -- those 65 and over -- will jump by almost 62%. And, the "senior seniors" -- age 80 and over -- will almost double in number.

One out of every three Canadians will have a life-altering illness during his or her lifetime. In addition, by age 80, one out of every three men and four out of every 10 women will spend some time in a nursing home. Not only will these trends put a strain on our health care system, they will also hit home at the family level. If it becomes necessary to dig into investment assets, the nest egg available to produce income could diminish quickly. Family members may also be placed in a position where their resources are strained as well.

Two new types of insurance have been designed to protect you against the financial strain of critical illness and long-term care. Critical illness policies provide a lump sum benefit to help you maintain and rebuild your lifestyle. They cover risks such as heart attack, cancer, stroke, coronary artery bypass surgery and Alzheimer's disease, to name a few.

Typically you can purchase this coverage from age 18-to-65 on either a 10-year basis, renewable to age 75, or for life. For example, we recently obtained coverage for a 48-year-old self-employed man who was concerned that a serious illness in the next 10 years until he retires could destroy his retirement savings. He has long term disability insurance to replace a percentage of his income, but nothing to cover the extraordinary costs related to a serious illness. His alternatives were to purchase $100,000 coverage for approximately $1,050 per year on a 10-year renewable basis (non-smoker), with the premium doubling in year 11, or $2,200 per year on a level premium basis with the policy paid up to age 65.

Long-term care insurance is a separate form of insurance and is intended to provide a source of money to help you maintain your quality of life, either through home care, or care in a long-term care facility. Generally, benefits are payable when it is established, on the certification of a physician, that you cannot perform a predetermined number (i.e. two or more) of activities of "daily living," due to cognitive impairment or a medical necessity caused by chronic illness.

One source quotes the premium for coverage that provides $50 per day for home care, and $100 per day in a long-term care facility for an individual age 65, as approximately $1,150. Adding an inflation protection rider doubles the premium. An analysis of the current cost of a private facility offering nursing services shows that the cost for a private room is about $1,765 over and above that paid by government, although this can vary with location. So, one proponent of long-term insurance equates the annual premium for a 65-year-old to the incremental cost that would be incurred for a private facility for one month, in today's dollars.

Sometimes one wonders if one could become "insurance poor" by insuring against all possible perils in life. In my early days in the insurance industry, disability insurance was called the "forgotten sale" because even though there is a far greater chance at most ages of a prolonged disability than there is of death, the majority of coverage on the books of insurance companies was life insurance. Conventional LTD (long-term disability) coverage available either privately or through employer plans, does not cover critical illness or long term care. Clearly then, as the population ages, insuring oneself against critical illness and long-term care is the only way that our hard earned retirement assets can be protected from the high costs of illness or injury.

Tidbits

A California-based company, Kopel Inc., has begun selling a rather unusual wallet over the Internet targeting those who forget their credit/debit cards. If you use your credit or debit card and forget to place it back in your wallet after one minute, the wallet will beep constantly every 20 seconds for the next five minutes.

The wallet operates by using a small microchip and a standard replaceable watch batter. It comes with a three-year warranty and weighs and looks the same as a regular wallet. The base price is US$28 and can be bought directly from Kopel's Web site at ww.beepingwallet.com (previously it was only available at department stores in the U.S.)