This article by University of Sydney Professor of Finance Susan Thorp in The Conversation caught our eye recently.
In the story, she argues that private insurance schemes for aged care is popular in many countries including France and Japan – and there is a growing demand for it here too.
Her study found that a majority of middle-aged Australians would buy aged care insurance in the form of income stream that pays extra if they suffer from poor health.
Participants were asked to choose between several options – a life annuity of $25,000 a year including the Age Pension; aged care insurance paying around $26,000; and an account-based pension such as superannuation.
Men chose to put 25 per cent of their retirement savings of $175,000 on the life annuity, about 15 per cent on aged care insurance and the rest in the account-based pension. Women also made similar decisions.
The result? People chose payments that were similar to the actual costs of aged care – ensuring they would have the money on hand if they did need care.
Planning for the future
In the past, there has been little interest in aged care insurance products in Australia. After all, who wants to think they will end up in a nursing home?
It’s easy to think the Government will foot the bill. Currently the cost of residential care is capped at $26,380.50 (as at 20 March 2017) every year and $63,313.28 (20 March 2017) over your lifetime.
But with the cost of funding aged care for the Federal Government expected to rise from one per cent of GDP now to 1.8 per cent by 2050, it’s likely that we the consumer will need to pay more if we want quality care – either in an aged care facility or at home.
With an estimated 60 per cent of over-65s needing some kind of formal care at some stage of their lives – and 40 per cent spending some time in residential care – it’s well worth a discussion.
