Dementia - It pays to start planning early

Dementia – It pays to start planning early

An increasing number of Australians suffer from dementia and often it’s their loved ones that carry the emotional and financial burden. This article looks at what you can do if you, or a loved one, develops dementia, and the importance of holding adequate life insurance to cover the additional cost of treatment and care.

  • Dementia is the biggest cause of disability in older Australians
  • 250 Australians are diagnosed with dementia every day
  • The financial cost of dementia is around $15 billion per annum
  • 1.5 million Australians care for people with dementia

What is it?

Dementia describes a collection of symptoms that are caused by disorders affecting the brain.

It affects a person’s thinking, behaviour and their ability to perform tasks, and it can happen to anyone although it is more common among the elderly.

There are currently 436,366 Australians living with dementia and a further 1.5 million involved in their care1.  Around 26,443 have younger onset dementia2.

It is estimated that 250 Australians are diagnosed with dementiaevery day. It is the single greatest cause of disability in Australians over age 65 and the third leading cause of the nation’s disability burden4. In 2018, dementia cost Australia more than $15 billion5.

For people living with dementia, there are two primary financial considerations:

  • ​The additional cost of care; and
  • Who is the right person to make financial and medical decisions on their behalf if they become mentally unable to do so?

Care factor

Life insurance can cover the cost of additional expenses such as treatment and care in the event of unexpected illness and disease such as dementia.

Life insurance contracts can provide total and permanent disablement (TPD) and/or trauma cover for various conditions such as “loss of independent existence”, “cognitive loss” and “dementia including Alzheimer’s disease – significant permanent impairment”. These benefits can fund additional medical expenses associated with ongoing care.

Someone suffering dementia, even in the early stages, may find it difficult to make sound judgements requiring financial literacy and reasoning6.

Another concern is that people with dementia are commonly targeted for financial abuse. Sadly, when this occurs, the abuse is perpetuated by their children in 66.3 per cent of cases and other family members in 16.5 per cent of cases7.  To ensure that the right people are responsible for making decisions in the best interests of people suffering from dementia, early planning is required and formal arrangements need to be put in place.

This is critically important for self-managed superannuation fund (SMSF) members, as they double as trustees. Contingencies must be in place to address situations where one member becomes mentally incapacitated.

Under the Superannuation Industry (Supervision) Act, a Legal Personal Representative (LPR) can take over a member’s responsibilities in certain situations, for example, when a member is under a legal disability8. This appointment is usually completed by the individual appointing the LPR under an Enduring Power of Attorney to act on their behalf regarding financial matters9. A member’s LPR must be nominated prior to the member losing mental capacity. A nomination cannot be made after the fact.  

If an individual has not completed an Enduring Power of Attorney or appointed an LPR prior to being diagnosed with dementia, and thus suffering a legal incapacity, then individuals may apply to the relevant State or Territory administration tribunal to manage the plenary estate on behalf of the incapacitated member. The tribunal will determine who will manage the financial affairs of the individual.  

The process of appointing an LPR is also dependant on the rules of the specific SMSF (Trust Deed) and Company constitution.

Dementia Australia (2018). Dementia Prevalence Data 2018-2058, commissioned research undertaken by NATSEM, University of Canberra.
The National Centre for Social and Economic Modelling NATSEM (2016) Economic Cost of Dementia in Australia 2016-2056
3 The National Centre for Social and Economic Modelling NATSEM (2016) Economic Cost of Dementia in Australia 2016-2056
4 Australian Institute of Health and Welfare (2012) Dementia in Australia
5 The National Centre for Social and Economic Modelling NATSEM (2016) Economic Cost of Dementia in Australia 2016-2056
6 Earl, J. (2015), Financial Literacy, financial judgement, and retirement self-efficacy of older trustees of self-managed superannuation funds, Australian Journal of Management, vol. 40, no. 3, pp435-458.
7 Moore, B. (2014), Preventing financial abuse – An interagency response. 4th National Elder Abuse Conference – 25 February 2014.  Alzheimer’s Australia.
8 ATO ID 2010/139; SMSFR 2010/2; s10(1) SIS Act 1993; s17A(1) SIS Act 1993; s17A(3)(b)(i) SIS Act 1993