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Financial products can ease the burden of long-term care

Financial Planning

Financial products that cover long-term nursing care are not very popular, a life assurer says, despite the huge need for such cover as we get older, given our increasing longevity.

Hollard Life has a dedicated Long Term Care stand-alone policy that pays an income of up to R30 000 a month, with an optional inflation-related increase, if you are admitted to a registered frail care, hospice or nursing home facility, or you can’t do three or more activities of daily living (such as eating, bathing, dressing and going to the toilet) and need direct supervision for 25 hours or more a week.

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The benefit is also offered as an add-on or ancillary benefit on life, disability, income protection or critical illness policies.

However, Ryan Chegwiddan, the head of product and technical at Hollard Life, says the take-up of the policy has been “almost zero”.

He says there is poor awareness of the costs and implications of long-term frail care and little understanding of the need for such cover.

Premiums on the Hollard policy depend on your age, gender and state of health. The best monthly premium for a man aged 40 now for an income of R30 000 in today’s rands and escalating each month by inflation is R201.77.

The highest age at which you can take out the cover is 60, and at that age the best premium a man would get is R630.74 a month. Rates for women are likely to be higher given their tendency to live longer.

Many life assurers offer what is known as a whole-of-life option on their income protection and disability policies. This means that, instead of taking out income protection or disability cover that pays out in the event that you are unable to work up until retirement only, you keep the cover in place until you die.

Nicky van der Nest, the divisional director of Liberty Life, says Liberty offers this benefit on its income policies. Your post-retirement income, which depends on the severity of your impairment, can be up to R75 000 a month.

The premium depends on your age, gender, smoker status, socio-economic class and occupation, as well as the waiting period and the escalation in the benefit you choose.

Gareth Friedlander, the head of research and development at Discovery Life, says Discovery has this feature on both its income protection policy and its capital (lump-sum) disability policies. The lump-sum disability benefit converts to whole-of-life severe illness cover at your chosen retirement age, Friedlander says.

Some life assurers offer functional impairment policies as a way to cover long-term care expenses after retirement. On these policies, benefits are based on the level of impairment of your body and the importance of the impaired part of your body.

Friedlander says most functional impairment products tend to be very restrictive and subjective in their claim definitions, resulting in few claims payouts. This translates into lower premiums for you, the policyholder, but you may be left unprotected, he says.

The definitions in Discovery Life’s whole-of-life income protection policy are broader and more objective, Friedlander says.

Another policy that may offer some protection against the costs of long-term care is a severe illness policy, which typically pays a lump sum on the diagnosis of a severe illness.

Old Mutual says this cover should be considered because frailty is often the result of a severe illness, such as a stroke, cancer or heart disease.

Schalk Malan, an executive director at BrightRock, says that if you use a severe illness policy, you must choose one with comprehensive cover for a large number of conditions.

He also recommends checking when you can claim on these policies.

For example, a policy may pay for a degenerative disease such as Parkinson’s only once you are unable to perform the activities of daily living, and you may incur significant additional expenses long before the disease progresses to that stage, he says.

BrightRock’s policies offer you the flexibility to choose between a lump sum and a monthly benefit for a period at claim stage.

Malan says a lump sum can be used to buy what is known as an impaired annuity – one that offers a higher payout because your life expectancy is reduced due to ill health.

BrightRock also allows you to convert your cover over your lifetime, so that at younger ages you can cover yourself for the financial impact of a serious, disabling event such as paralysis, or cover your children’s education needs or your debt, while at older ages you can take what BrightRock calls “additional expenses cover” for things such as a knee replacement, which can incur additional costs not linked to your ability to earn.

This ability to convert cover overcomes the problem of finding yourself unable to get cover or being able to get only expensive cover at an older age when your health has declined, Malan says.

He says it is also important to consider that, at an older age, you are more likely to be affected by more than one illness or injury. You must understand how a claim will affect your cover: will it reinstate, will you be able to claim again later and, if so, under what circumstances?

Insuring yourself for a lump sum, or setting aside your own savings for possible future long-term care needs, leaves you exposed to the risk of not having sufficient funds, some life companies say.

Friedlander says an assurance policy may not be the cheapest way to provide for your long-term care needs, but it will probably be the most appropriate form of protection.

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