Critical Illness and Long-Term Care Insurance: Do You Still Need It at Retirement?
A practical guide to two of the most important — and most misunderstood — insurance decisions affluent Ontarians face at retirement
When most people think about insurance in retirement, they think about life insurance — whether they still need it, whether to keep it, whether to cancel it. But two other types of insurance deserve equal attention at this stage of life: critical illness (CI) insurance and long-term care (LTC) insurance.
These products address very different risks than life insurance. Not the risk of dying too soon, but the risk of living with a serious illness or disability for an extended period. For affluent Ontarians with $1 million or more in assets, the question is not simply 'can I afford the premium?' It is the more nuanced question: 'Does insurance make more sense than self-insuring from my portfolio?'
The answer is rarely obvious and it depends heavily on your health, your assets, your family situation, and how you weigh certainty against flexibility. This article lays out the key considerations for each product so you can have a more informed conversation with your advisor.
Critical Illness vs. Long-Term Care: Two Different Problems
Before evaluating whether you need either product, it helps to understand exactly what each one is designed to solve — because they address fundamentally different risks.
| Critical Illness Insurance | Long-Term Care Insurance | |
|---|---|---|
| What triggers it? | Diagnosis of a covered condition (e.g. cancer, heart attack, stroke) | Inability to perform 2+ Activities of Daily Living (ADLs), or cognitive impairment |
| What does it pay? | A single lump-sum tax-free payment | A monthly or daily benefit for ongoing care costs |
| How long does it pay? | Once only, upon diagnosis and survival period | For the duration of the care need — potentially years |
| Use of proceeds | Unrestricted — treatment, income replacement, debt, lifestyle | Typically applied to care costs (home care, LTC facility, retirement community) |
| Typical benefit amount | $100,000 – $2,000,000+ | $3,000 – $10,000+/month |
| Best suited for | Managing the financial shock of a serious illness in the first 1–3 years | Funding extended care needs — 2 to 10+ years |
* Benefit amounts and structures vary significantly by policy. Figures are illustrative only.
In simple terms: critical illness insurance is about surviving a health crisis financially intact. Long-term care insurance is about funding years of ongoing care without depleting your assets or burdening your family.
Critical Illness Insurance: The Case For and Against
Critical illness insurance pays a lump-sum, tax-free benefit if you are diagnosed with a covered condition — typically including cancer, heart attack, stroke, organ failure, multiple sclerosis, and a range of other serious illnesses — and survive a waiting period (usually 30 days). You receive the money regardless of whether you can work, and you can spend it however you choose.
The case for keeping or acquiring CI insurance at retirement
Even with $1M+ in assets, a serious illness can create immediate, substantial costs that you may not want to draw from your investment portfolio. Particularly during a market downturn. A $500,000 CI benefit provides a dedicated pool of funds for treatment, home modifications, private nursing, and income replacement without forcing portfolio liquidation.
CI insurance proceeds are tax-free and do not affect OAS, GIS, or other income-tested benefits. Making the after-tax value of the benefit very high.
A serious illness often triggers a cascade of financial decisions. Stopping work earlier than planned, covering travel for specialized treatment, funding alternative therapies, or simply replacing the income of a caregiver spouse. The flexibility of a lump sum is highly valuable.
Return-of-premium (ROP) riders on some policies return all premiums paid if you never make a claim and survive to a specified age. Effectively converting the product into a forced savings vehicle with an insurance benefit attached.
The case against CI insurance at retirement
Premiums for CI insurance escalate significantly with age. A policy for a 65-year-old costs materially more than the same coverage for a 55-year-old, and the underwriting requirements become more stringent.
If you have $2M or more in liquid assets and a strong income plan, self-insuring the financial impact of a serious illness may be more cost-effective than paying premiums for a benefit you may never need.
Many CI policies have exclusions, waiting periods, and definitional requirements that can complicate claims. Reading the fine print matters.
Existing employer-sponsored or group coverage may already provide some CI benefit — review what you have before purchasing individually.
Key Question to Ask
How would a $300,000–$500,000 unexpected health expense affect your retirement plan — not just financially, but behaviourally? Would you be comfortable liquidating investments, potentially during a market downturn, to fund treatment? If the answer is 'that would be stressful and disruptive,' CI insurance may be worth the premium.
Long-Term Care Insurance: A More Complex Calculation
Long-term care insurance is designed to fund the cost of ongoing care when you can no longer manage independently. Whether that care is provided at home, in a retirement community, or in a long-term care facility. Benefits are typically triggered when a physician certifies that you cannot perform two or more Activities of Daily Living (ADLs). Such as bathing, dressing, eating, or toileting. Or when you have a diagnosed cognitive impairment such as dementia.
In Ontario, the stakes are significant. Private long-term care and retirement community costs range from $4,000 to $15,000+ per month depending on the level of care and the quality of the facility. For a couple where both partners eventually require significant care, the combined lifetime cost can easily reach $500,000 to $1,000,000 — a material portion of even a healthy retirement portfolio.
The case for LTC insurance at retirement
LTC insurance converts an unpredictable, potentially catastrophic cost into a manageable, fixed premium. For those who value certainty and want to protect their estate for their children, transferring this risk to an insurer can be compelling.
The probability of needing some form of long-term care is high — particularly for couples. Statistics Canada data suggests approximately one in four Canadians will require more than a year of care before death, and for couples, the probability that at least one partner requires significant care is substantially higher.
Purchasing LTC insurance protects assets intended for a surviving spouse or children from being consumed by one partner's care costs. Without insurance, a prolonged care episode can deplete the couple's joint portfolio, leaving the surviving spouse with significantly less.
LTC insurance provides access to care options you may not otherwise afford — allowing you to choose where you receive care rather than accepting whatever the provincial system provides.
The case against LTC insurance at retirement
LTC insurance is expensive and has become less widely available in Canada over the past decade as several insurers have exited the market. For a 65-year-old, annual premiums for meaningful coverage ($5,000/month benefit, 90-day elimination period, 3% inflation protection) can range from $3,500 to $8,000+ per year — more for those with pre-existing health conditions.
Premiums are not guaranteed to remain level — many policies include provisions allowing the insurer to increase premiums with regulatory approval. This creates uncertainty in your retirement budget.
For those with $3M or more in liquid assets, self-insuring for long-term care may be financially rational. The question is whether dedicating a TFSA or investment sub-account specifically to a care reserve provides sufficient protection without the premium cost.
The interaction with Ontario's publicly funded LTC system is complex. Subsidized basic-room LTC remains available for those who cannot afford private options, which creates a partial floor of coverage that reduces (but does not eliminate) the self-insurance risk.
Important Timing Note
LTC insurance, like all insurance, is easiest and least expensive to obtain while you are in good health. The best window for purchasing LTC insurance is typically in your mid- to late-50s, before age-related health conditions make coverage more expensive or unavailable. Many Ontarians who wait until their late 60s find the premiums prohibitive or discover they no longer qualify due to health changes. If you are considering LTC insurance, the time to evaluate it is now — not later.
Hybrid Products: The Best of Both Worlds?
In recent years, insurance companies have introduced hybrid products that combine life insurance or annuities with long-term care or critical illness benefits. These products have become increasingly popular because they address the main objection to traditional CI and LTC insurance: 'What if I pay premiums for 20 years and never make a claim?'
A common hybrid structure involves a permanent life insurance policy with an accelerated benefit rider that allows a portion of the death benefit to be accessed early if you are diagnosed with a critical illness or meet LTC triggers. If you never need the benefit, the full death benefit passes to your beneficiaries.
Key advantages of hybrid products:
No 'use it or lose it' concern — the benefit is paid either as a living benefit (if care is needed) or as a death benefit (if not)
The premium is often a single lump sum or a defined payment period — eliminating the risk of premium increases
The death benefit component may serve estate planning goals simultaneously
The tradeoff: hybrid products typically require a larger upfront capital commitment and may offer less care coverage per dollar compared to standalone LTC policies. They work best when estate planning and healthcare protection goals can be combined.
A Decision Framework: Should You Keep, Buy, or Drop Coverage?
Rather than a one-size-fits-all answer, the right approach depends on your specific situation. Work through these questions with your advisor:
For Critical Illness Insurance:
Do you already have CI coverage through an existing policy or group benefit? If yes, review the coverage amount, conditions covered, and whether it makes sense to keep or supplement it.
What is your current health status? If you are in excellent health, purchasing or renewing CI coverage at retirement may be cost-effective. A diagnosis that makes you uninsurable is the worst time to wish you had locked in coverage earlier.
How large is your liquid portfolio, and how comfortable are you drawing from it for healthcare? For portfolios under $1.5M, CI insurance provides meaningful protection. For portfolios over $3M, self-insurance becomes more reasonable.
For Long-Term Care Insurance:
What is your family health history? A strong family history of dementia, Parkinson's, or other long-duration conditions increases the probability of needing extended care.
Do you have a surviving spouse who could be financially harmed by your care costs? Protecting the couple's joint assets from one partner's care episode is one of the strongest arguments for LTC coverage.
What level of care do you want access to, and what does it cost? Model the realistic cost of the care you would choose (not just the provincial minimum) and assess how many years your portfolio could fund it before becoming a concern.
Can you obtain coverage now? Get a quote while you are healthy — this determines whether insurance is even an option before you decide whether it is the right option.
The Self-Insurance Calculation
If you decide to self-insure for long-term care, be specific about it: designate a dedicated pool of assets (ideally $300,000–$500,000 in a TFSA or separate account) for this purpose, and have a clear plan for what happens to that pool if it is not needed. Vague self-insurance ('I have enough money') is not a plan — it is an assumption that may not hold if care costs are higher or longer than expected.
What About Existing Policies You Already Hold?
Many Ontarians approaching retirement already hold CI or LTC policies purchased in their 40s or 50s. The question of whether to keep them is separate from whether to buy them new.
For existing policies, consider:
Is the coverage amount still adequate? A $200,000 CI benefit purchased 15 years ago may be insufficient given inflation in healthcare costs and lifestyle expectations. A top-up or new policy may be warranted.
Have you reviewed the policy definitions recently? Insurance contracts evolve, and the conditions covered, waiting periods, and benefit triggers in your policy may differ from current market standards. Know exactly what you own.
Is there a return-of-premium option you haven't fully evaluated? Some older policies have ROP features that become increasingly valuable as you age — surrendering the policy before the ROP date forfeits a meaningful benefit.
Does your financial plan still need the insurance to work? If your portfolio has grown significantly since you purchased the policy, re-evaluate whether the coverage is still financially necessary or whether it has become a legacy planning tool.
Is Your Healthcare Risk Properly Covered?
Critical illness and long-term care insurance decisions are among the most complex in personal finance — because they sit at the intersection of health, wealth, family, and values. The right answer requires a clear view of your assets, your health, your family situation, and what level of risk you are genuinely comfortable carrying.
We work with our clients to model the financial impact of various healthcare scenarios, evaluate whether insurance or self-insurance makes more sense for their specific situation, and coordinate coverage decisions with their broader retirement income and estate plan.
Contact us today for a complimentary consultation
This publication is for informational purposes only and has been prepared from public sources which are meant to be reliable. None of the information in this should be construed as investment advice. Speak to your Investment Advisor to learn if this product is right for you. Designed Securities Ltd. (DSL) is regulated by the Canadian Investment Regulatory Organization (CIRO), and a Member of the Canadian Investor Protection Fund (www.cipf.ca). Christopher Burke is registered to advise in securities to clients residing in Ontario. The views expressed are those of the author and not necessarily those of DSL. This report does not constitute an offer or solicitation in any jurisdiction in which such offer or solicitation is not authorized or to any reliable person to whom it is unlawful to make such offer or solicitation. Content is accurate as of the date of publication, and subject to change without notice.
