Long-term care

by admin on September 18th, 2009

There is no panacea when it comes to paying for care

Long-term care provision in the United Kingdom has been the subject of much debate and analysis over the past decade, yet the issue of how to fund the cost of that care for future generations remains unresolved. Much of the debate has revolved around how the State should address the problem.

As you get older, you might develop health problems that could make it difficult to cope with everyday tasks. So you may need help to stay in your own home or have to move into a care home.

The State may provide some help towards the costs of this care depending on your circumstances, but there are also other ways to help you cover the cost of care, including using savings and investments.

Long-term care refers to care you need for the foreseeable future, maybe as a result of permanent conditions such as arthritis, a stroke or dementia. It could mean help with activities such as washing, dressing or eating, in your own home or in a care home (residential or nursing).

You should check with your local authority about any support they give. The social services department will assess your care needs and your income and savings. If your income and savings are low the local authority will pay some or all of your long-term care costs.

You may also qualify for Disability Living Allowance if you are under 65 or Attendance Allowance if you are over 65. Attendance Allowance cannot normally be paid if social services or the NHS are funding your care in a care home.

Although social security benefits are the same throughout the UK, other help provided by local authorities varies. So you should find out what your local authority offers.

If you don’t qualify for financial help from the local authority, you will normally have to pay towards the cost of care out of your own income and savings – which could result in you eventually having to sell your own home to meet the costs.

There are many different ways to help you pay for long-term care.

Long-term care insurance

Long-term care insurance is one way of insuring yourself against the cost of long-term care.

There are basically two types of long-term care insurance (LTCI):

Immediate care LTCI – you can buy this when you actually need care; and

Pre-funded LTCI – you can buy this in advance, in case you need care in the future.

Immediate care long-term care insurance

This can be purchased when you have been medically assessed as needing care, which can be at any age.

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.

The amount you pay will vary depending on:

the amount of income you want;

whether you want the income to increase, for example, with inflation;

your age and sex; and

the state of your health.

You’ll be assessed medically to determine how much you must pay for your chosen level of income.

Pre-funded long-term care insurance

You can buy this in advance, in case you need care in the future. You can buy it at any age, but some have a minimum age for receiving the plan benefits of 40 or 50.

You take out an insurance policy that will pay out a regular sum if you need care. It pays out if you are no longer able to perform a number of activities of daily living (such as washing, dressing or feeding yourself) without help, or if you become mentally incapacitated. The money it pays out is tax-free.

Some existing policies may be linked to an investment bond, which is intended to fund the premiums for the insurance policy. These policies involve more investment risk and, in some cases, can use up your capital.

You typically pay either regular monthly premiums or a single lump sum premium. In either case, the insurance company usually reviews the plan, say every five years, and the premiums may then rise, even if you’ve bought a single premium policy. Premiums depend on your age, sex and the amount of cover you choose.

Did you know?

Anyone who requires care in a care home and has assets worth over £23,000, which can include property, will have to pay for their care in full. With care home fees averaging £24,700 a year, or £35,100 a year if nursing is required, according to Saga’s Cost of Care Report 2008.

State assistance

There are state benefits that will help, the most common being Attendance Allowance, a tax-free weekly amount of £47.10 or £70.35.
If nursing care is required, the NHS makes a weekly contribution of £106.30 directly to your care home to be offset against fees. Assuming that both of these benefits were received, they could generate an additional £9,185 a year towards the fees.

Private payers who own a property but have savings of less than £23,000 are entitled to a 12-week property disregard where the value of the property is excluded from the financial assessment. As a result, they qualify for state funding during this period. This does mean having to involve the local authority, but it is well worth applying for as this support can add up to a few thousand pounds.

Paying for care

Despite the state benefits, many will not have enough other pension income to cover their fees and will have to rely on their assets to cover the rest.

It is widely believed that people can be forced to sell their properties but this is not the case, although whether to keep or sell the property is one of the hardest decisions to make.

If you wish to keep the property and do not have other savings, the property could be let to generate income. However this is taxable and often is not sufficient to cover the funding shortfall, so additional income would have to be found.

The local authority deferred payment scheme may be able to help and would pay towards the care in return for an interest-free charge against the property that would need to be repaid on death. The property might still have to be sold to repay the debt.

If a property is sold or if there are other savings available, there are other options to meet fees. The simplest option may be to keep the funds in interest-bearing cash accounts and gradually spend the capital down. The risk here is that the funds could be depleted down to the local authority funding levels, which could mean that the current care home was no longer be affordable.

Alternatively, in exchange for a lump-sum payment, a “care fee annuity” may provide a sufficient guaranteed tax-free income for life. This should help ensure that fees could be met for life and also protect any remaining capital. The risk here is that no capital is returned on death.

There is no panacea when it comes to paying for care; there are advantages and risks with each option and it is important to obtain professional advice before making any decisions.

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