Everything you need to know about Long Term Care
| Long Term Care is becoming an essential financial planning area for many families in the UK. This is due to the increased life expectancy of the elderly, and the fact that the UK population as a whole is heavily geared towards the older generations. There has been lots of press comments about the swing towards an ageing UK population, and the fact that the government will have a problem soon with supporting the amount of elderly people in retirement. There are not enough babies being born to cover the amount of people that will be in retirement, and therefore the demands on the NHS, state pension, and Free Care facilities will be put under huge pressure over the coming years. |  |
What is Long-term care Insurance?
Long-term care insurance provides a planned way of paying for some or all of the cost of any long-term care you may need now or in the future. Through a lump sum payment in advance, or regular premiums, you can buy insurance to cover the cost of care in your own home (domiciliary care) or in a residential or nursing home.
The expression "long-term care" does not apply to care needed to recover from short illnesses, or convalescence following such illness. It refers to care that is needed for the foreseeable future, perhaps as a result of permanent conditions such as arthritis, stroke or dementia. Care needs caused by these long-term conditions are not always met by the NHS and are not supported indefinitely by private medical insurance policies.
There are different ways in which you can buy long-term care insurance:
- Through a lump sum purchase to pay for care immediately ("immediate need" plans).
- Through regular premiums, or a lump sum, in case you need to pay for future care (" pre-funded" policies).
What about my State Benefits?
Many indivduals needing Long Term Care will be eligible for disability benefits including Disability Living Allowance or Attendance Allowance. However, these benefits are not intended to cover the full costs of all the care that you might choose to have in your own home or in a residential or nursing home.
Currently, the government will only contribute totally to care costs if your assets are £12,250 or less. These assets include cash, bank and building society accounts, national savings, investments, stocks and shares, assets held overseas and any property you may own other than your own home. In addition, if you move into permanent residential care and your own home is unoccupied, the value of your home will then count as part of your capital for these purposes.
If your assets are between £12,250 and £20,000 some help may be available but only after a stringent means test. If your assets exceed £20,000, you must normally fund the full costs of residential or nursing home care. Therefore many people will have to pay for Long Term Care themselves.
Types of Long Term Care Plans to Consider
Immediate Need Plans
These type of policies, which are simply impaired life annuities, are designed to help fund care for those who need it immediately. If you are in poor health and already need care, or you are about to go into a nursing home, it is possible to pay a single premium to buy a policy which will begin paying for your care immediately. These policies guarantee future payments towards the cost of nursing or residential home fees for as long as necessary. For a single payment you will receive a tax free benefit paid directly to the registered care provider for the rest of your life. You can choose to have your income escalate each year by 1% to 5% to take into account the effects of inflation.
Investment Required to Fund a monthly income of £1000
| No Medical Underwriting | Mild | Moderate | Severe | ||
| Male Age 83 | No Escalation | £88,955 | £53,849 | £45,590 | £38,473 |
| Male Age 83 | 5% Escalation | £109,816 | £59,672 | £50,078 | £41,979 |
| Female Age 83 | No Escalation | £103,655 | £66,016 | £58,259 | £51,591 |
| Female Age 83 | 5% Escalation | £131,879 | £75,570 | £66,228 | £58,353 |
| Male Age 88 | No Escalation | £64,321 | £44,412 | £37,752 | £31,830 |
| Male Age 88 | 5% Escalation | £74,858 | £48,226 | £40,661 | £34,063 |
| Female Age 88 | No Escalation | £74,341 | £53,498 | £47,408 | £42,023 |
| Female Age 88 | 5% Escalation | £81,413 | £59,459 | £52,350 | £46,183 |
Source: Partnership Assurance 3rd Oct 2005. The above figures are examples only and are not guaranteed.
Capital Protection Plan
For those people who are concerned about losing the lump sum capital that they put into an Immediate Needs plan if they, or there family member were to die in the early stages of the plan, you can take out a capital protected plan instead. This type of plan uses the same basis as an Immediate needs plan, but you can elect to protect a percentage of the premium that you paid. This type of policy can protect up to 75% of the lump sum paid, and will be paid back to the family or persons estate on death. Some companies will also offer a Capital Protection Plus plan, this is where you guarantee a lump sum will be paid back to your family or estate regardless of when you die, below you will find an example of the two options and the difference in the lump sum that is required.
Male Aged 88 with a mild impairment, £1,000 monthly benefit required having paid a £58,453 premium inclusive of a 50% capital protected amount totalling £29,227. ( Capital Protection Plan)
| Death Occurs | Totol Benefits Paid | Amount Returned To Estate |
| 6 months | £6,000 | £23,227 |
| 12 Months | £12,000 | £17,227 |
| 18 Months | £18,000 | £11,227 |
| 24 Months | £24,000 | £5,227 |
| 30 Months | £30,000 | £0 |
Male Aged 88 with a mild impairment, £1,000 monthly benefit required having paid a £107,379 premium, inclusive of a £53,849 capital protected amount.( Capital Protection Plus Plan).
| Death Occurs | Totol Benefits Paid | Capital Protection |
| 6 months | £6,000 | £53,849 |
| 12 Months | £12,000 | £53,849 |
| 18 Months | £18,000 | £53,849 |
| 24 Months | £24,000 | £53,849 |
| 30 Months | £30,000 | £53,849 |
Source: Partnership Assurance, 3rd Oct 05. The above figures are examples only and are not guaranteed.
Pre-funded Policies
There are two main types of "pre-funded" policies. First, there is traditional insurance -paying a single or regular premium into a "common pool" to insure against a possible future event. You can take out a policy at any age to cover the cost of long-term care in the future. The insurance is usually underwritten, which means that your state of health will be taken into account. These policies allow you to choose the type of care you wish to receive and can cater for deteriorating health.
An alternative to traditional pre-funded plan is a combination single premium investment bond and regular premium long-term care policy. These type of plans ensure that should the need for long-term care arise there will be some benefits available to the policyholder and after death, his/ her heirs.
Advice & Quotations
If you would like to receive advice as to the right course of action for your own circumstances, or those of your family, we are happy to talk to you and make a recommendation, and supply you with quotations, so you understand the cost implications before you agree to go ahead. Please take a few minutes to complete the Long Term Care Enquiry form by clicking on the link below, and we will make contact with you within 48 hours.
