Long-term care
What is long-term care?
Long-term care refers to any care that you may need as a result of a permanent ailment, such as arthritis, a stroke, or dementia. It does not, however, cover any short illness that requires care only whilst you recover. The care could constitute help with your personal wellbeing, activities such as washing, dressing or eating, whether in your home, or in a care home (Residential or Nursing).
How can I fund Long-term care?
If you do need Long-term care, you should speak to a support officer at your local authority. The department of social services will make an assessment, not only of your care needs but also of your income and savings. If your capital is low, your local authority may pay the full balance of costs, or make a contribution to the costs of your care.
There are also other benefits available, such as Disability Living Allowance (DLA) if you are under 65, or Attendance Allowance (AA) if you are over 65. However if you already receive aid from your local authority then the DLA or AA will not pay the care component of the benefit. Help provided by the local authorities vary from region to region, and although social security benefits are standard throughout the country, they are subject to change and revision from time to time.
You would be responsible for the cost of your care should you fail to qualify for funding by your local authority, this would come from your own capital and income, including the sale of any properties you may own, to meet the costs of your care.
You should seek the aid of an Independent Financial Adviser, should you wish to release equity (money) from the value of your home, using a ‘Lifetime mortgage’ or ‘Home reversion’ scheme. Your Adviser can also inform you if this would affect any benefits you already receive.
What kind of Long-term care insurance (LTCI) is available?
Basically there are two types of insurance, these are:
· Immediate care LTCI – for when you actually need care;
· Pre-funded LTCI - brought in advance against the possibility you may need care in the future.
Why might you consider buying LTCI?
If you are seeking LTCI, it is important to consider all the options available. This would mean gaining advice from a professional source such as a Financial Adviser or a solicitor.
Three main risks exist for buying a plan, these are:
· To preserve capital
If you are paying for your care out of your own assets and capital, you could end up with little or even nothing to pass on to your family, and may even run out of capital in the meantime. This is because this form of funding your care is an open-ended commitment. Although buying a Long-term care plan may take a substantial amount of your capital, it is a one off payment, (although in some circumstances you may be asked to pay more money- see heading titled ‘How do I pay?’).
· To ensure your partner has enough income
If the state pays the costs of your care, then it may be means tested. This assumes that any income earned jointly with your wife, husband, or partner is split equally between you. This may leave your partner short of money should their income remain largely the same.
· To give you greater choice about your care
For example, your local authority is unlikely to agree to meet the full cost of a place in an expensive care home.
How much does Long-term care cost
Long-term care charges can vary from one area to the next and according to the care you require.
As a rough guide, your personal care in your own home might cost you £13 per hour. So, if you require two hours of care a day then the cost will be £9,490 per year.
In 2005, average care home fees were roughly £19,500 per year for residential care and £27,500 for Nursing home care. But they can be significantly higher depending on your location and care facilities available.
How much cover do I need?
Although Long-term care can be comparatively expensive, it is not always necessary to cover the whole of the care costs – an average LTCI policy typically covers 50% of the cost, with the remainder of the fees coming from your own income and state benefits.
The usual approach to LTCI policies is to estimate how much you could reasonably afford to pay out of your own income, including any state benefit that you receive. Compare this to the possible care home fees you could face and use the LTCI to meet the shortfall.
Planning for your Long-term care can be very complex, as detailed analysis of your income, savings, assets and benefits need to be made. You should seek out the help of a Financial Adviser before taking out any product to cover Long-term care costs.
The FSA’s role in LTCI
The FSA regulate the sales and advice process for LTCI products. This means that firms selling or advising on these products must be authorised by the FSA.
How do different types of LTCI compare?
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Immediate care LTCI
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Pre-funded LTCI
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When can I start it?
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You buy an immediate care plan with a lump sum. This pays out a regular income for the rest of your life, which is used to pay for your care.
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Any age, but some have a minimum age of 40 or 50
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How does it work?
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To be eligible, you must already need care, either in your own home or in a care home. You will be assessed medically to determine how much you must pay for your chosen level of income.
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You may take out an insurance policy that will pay out a regular sum if you need care. The money from the policy is tax free.
With some policies, the insurance bond, may be linked to an investment bond, this is intended to fund the premiums for the insurance policy. But these involve more investment risk and, in some cases, can also use up your capital.
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When does it pay out?
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When you have been medically assessed as needing care.
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It will pay out if you are no longer able to perform a certain number of activities or daily living (ADLs) without help, such as washing, dressing, or feeding yourself, or if you become medically incapacitated. Different insurers use different definitions, and you must usually fail either two or three ADLs. This will be determined through a medical assessment.
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How long does it pay
out for?
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It normally pays out until you die or no longer need care.
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Most policies pay out for as long as you need care (usually the rest of your life.
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What is not covered?
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This type of plan is not available if you do not need care, but simply decide you would prefer to live in a residential home.
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Temporary problems, for example, if you need help for a few weeks following an operation.
Or if, for example, your health problem is caused by alcohol or drug abuse, or due to attempted suicide, or if it relates to HIV or AIDS. Some mental conditions such as depression and schizophrenia are also usually excluded.
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Some of the risks
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You can’t cancel the plan or get your lump sum back, except during the ‘cooling off’ period immediately after you buy the plan. You could lose out on means-tested state benefits. Check what is available from your local authority.
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You might never need care, in which case you might feel your premiums have been wasted.
Your regular premiums might rise following a review by the insurance company or, if you have paid a single premium, you might be asked for more money.
Any money you get from the policy might affect the amount you can claim in means-tested state benefits.
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What happens if I
don’t claim?
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This type of plan is only available when you been assessed as needing care.
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With a straightforward insurance-only policy, you get nothing back.
With an investment-linked policy, you receive the balance of the investment fund if you cash in the policy. But how much you get back will depend on how well the investment element has performed and how much the insurance premiums that it is intended to fund have increased – in some cases there could be nothing left.
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What happens when
I die?
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The income stops and the capital is not repaid unless you have chosen a plan which provided some death benefit (i.e. a lump sum paid to your estate)
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The income usually stops. But some policies will pay out a lump sum to your estate if you die within the first few years of taking out the policy without actually claiming on it. Most pay nothing.
With an investment-linked policy, the balance of the investment fund is paid to your estate (But see the above).
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How do I pay?
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With a lump sum. The amount you pay varies depending on:
· The amount of income you want;
· Whether you want the income to increase, for example, with inflation;
· Your age, sex; and
· State of health.
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Either regular monthly premiums or a single lump sum premium. In either case, the insurance company usually reviews the plan,
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Is inflation taken
into account?
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Most plans let you choose whether or not the money
you get from the policy is fixed or increases by a set
amount each year or in linewith inflation.
But the cost of care tends to rise faster then the price
inflation, largely because care is very labour intensive.
So consider choosing a plan that increases in line with
increases in earnings. It is important that you regularly
review the amount you expect to get from your plan
against the likely cost of care to ensure that you
have sufficient cover.
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These are only two of the options available to you. You should seek out professional
advice from an authorized Financial Adviser before taking out any financial product
to cover Long-term care costs. You may also find it a good idea to discuss your
options and decisions with family or close friends so that they know the provision
you have made for yourself and are in a position to help you, for example,
in making a claim should the need arise.
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