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How to guard yourself financially against dementia

Nicki Bourlioufas  |  28 Oct 2016Text size  Decrease  Increase  |  

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Putting financial and legal plans in place now allows a person who may be at risk of getting dementia to arrange for future care and financial decisions.


As Australia's population ages, more of us will pass away due to dementia. The sad reality of this disease is that we will lose our ability to think clearly and make decisions, including financial decisions.

Living costs and medical expenses may escalate, and this is something we may need to insure against, experts say.

According to the Australian Bureau of Statistics (ABS), dementia is set to soon become the leading cause of death in Australia. While death rates from heart disease and stroke have been steadily declining in recent years, dementia rates have been rising.

In 2013, dementia became Australia's second leading cause of death, overtaking stroke for the first time. While heart disease has been the leading cause of death in Australia for many decades, the rate of death from heart disease has been steadily falling.

"If these trends continue we can expect to see dementia become our leading cause of death within the next few years," the ABS said recently.

The disease may well be something for which we need to make provisions, financial advisers say.

People with dementia on average live longer than those who die of heart disease or stroke. The median age of those who died from dementia in 2015 was 88.6 years of age, while the median age at death from heart disease was 85.1 and 86.6 for stroke, according to the ABS.

Putting financial and legal plans in place now allows a person who may be at risk of getting dementia to arrange for future care and financial decisions.

As dementia progresses, the ability to make legal and financial decisions will be dramatically compromised and the high costs involved with dementia care and/or loss of income may dramatically reduce the value of a person's wealth.

Financial advisers can help with financial planning for dementia, including wealth management, savings planning and obtaining insurance cover to cover against financial risk.

If you are at risk of getting dementia, which can be hereditary, it's important to get financial advice and plan ahead while you are still able to make decisions, says senior financial adviser with Anne Street Partners, Pravesh Daya.
"It's a good idea to make plans before any diagnosis. If you have a history of dementia in the family, then it might be prudent to get financial advice prior to any diagnosis so you can put insurance into place to cover the costs of living with dementia and the loss of income that may result," says Daya.

Total and permanent disability (TPD) insurance, trauma cover, also known as critical illness cover, and income protection may all have a role to play in insuring against the disease and its financial consequences.

"You may need to consider things like the level of debt you hold against your home and investment debt you may have in the future, and the level of care you may need and the ongoing medical and carer's costs. TPD cover can help insure against such costs while trauma cover will help you to pay for the medical treatment that you may need," says Daya.

"Income protection will replace the income that you lose through your inability to work due to dementia and you may be able to claim 75 per cent of your current wage to help you leave and pay your bills, depending on your cover.

"If you do make an application for insurance and it's declined because you already have the disease or because of your family history, you may not be able to get insurance so you may need to self-insure, that is, build your own investment portfolio to help ensure against such costs. That's why it's important to get advice early, so you do have enough time to save and self-insure if you need to."

Planning ahead may also mean you should consider getting legal advice on estate planning, covering matters such as making a will in place and having a power of attorney. The latter will allow another person you nominate to manage your affairs when you are no longer able to do so.

If you do not have a valid will, and you become mentally incapable of making one, your estate will be distributed according to the relevant laws in your state, not according to your wishes. Importantly, a will is only valid if you make it while you understand what you are writing.

Dementia (including Alzheimer's disease) is a collection of numerous symptoms caused by disorders affecting the brain. As brain cells die, the substance of the brain shrinks, causing certain information to no longer be recalled or understood.

According to the Australian Institute of Health and Welfare, approximately 342,800 Australians had dementia in 2015, with projections based on an ageing population and growth estimating this number will reach almost 400,000 by 2020.

Those numbers alone are a warning that financial preparation may be necessary.

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Nicki Bourlioufas is a Morningstar contributor.

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