Long Term
Care
Insurance

Long Term Care Insurance

“Planning ahead for possible care”

Q. - If your parent or spouse is already in need of care, what can be done to help minimize the care consuming all their life’s savings?

A. - An Immediate Needs Long Term Care Insurance.

Long Term Care Insurance plans are aimed at providing ongoing income for the rest of your life once a need for care arises. The income they pay out, can be used to provide the quality of care and support you want, initially in your own home, and/or in a formal care home. The main benefit of Long Term Care Insurance (also known as immediate needs annuity)  is that once purchased, they will carry on paying the insured amount for however long term care is needed, instead of you or your relatives having to guess the length of care needed and trying to manage your money accordingly. In comparison should you start to self-fund, due to any cost of care received or poor investment returns, it can soon become impossible to back track and find sufficient money to purchase a Long Term Care insurance at a later date.

Immediate Needs Annuities – These plans are designed to help fund care for those who already need it because they have become mentally impaired or alternatively fail at least one Activity of Daily Living- (Washing yourself, feeding yourself, continence, being able to transfer from bed to chair, dress yourself). In return for paying the provider a single lump sum, the person in need of care (or their personal representatives) will receive a guaranteed income for the rest of their life thus ensuring continued care. As such they are like purchased life annuities, but with two distinct differences:

• First, each plan is individually underwritten;
• Second unlike an ordinary annuity the payments received from the provider are paid free of tax so long as they are paid to a recognised care provider.

Therefore the purchase cost of these Immediate Needs Annuities are, pound for pound, less than would be available from an ordinary annuity. The amount of premium required will depend upon the age, sex and health of the patient – the worse it is the cheaper the premium will be as life expectancy and therefore the expected term is lower.

Advantages

• Once any application has been accepted, payments are guaranteed and are not affected by interest rates or investment returns.

• Once in payment such benefits will continue to be paid for the rest of the person in need’s life, even if anything happens to the person responsible for setting it up.

• Premiums take into account medical health and therefore the premiums are cheaper than ordinary annuities.

• The benefits can be paid directly to the care provider avoiding the requirement to regularly make out cheques or monitor direct debits.

• Benefits paid directly to registered care providers are paid tax free, which means in reality that compared to an ordinary annuity, to purchase the same income, the premium required is less.

• Because indexation of benefits can be provided for, unlike any investment plan, a guaranteed rising income can be provided, to help meet increases in care costs.

• Such annuities cap the cost of care, especially if a suitable level of indexation is chosen, as once purchased, unless the care requirement increases, or costs rise mores steeply than allowed for,  it should prevent you from having to make further major provision.  This can even mean that you can invest some of the remaining capital to try and achieve extra income should it be needed and/or growth to replace some of the money used to buy the annuity.

• The premium used to purchase an Immediate Needs Care Annuity will immediately reduce the remaining estate and therefore reduce any Inheritance Tax liability there might have been.

Disadvantages

• The person in need of care may simply die before they have received in benefits, the same amount as it cost to buy the annuity. However, this can be overcome by paying a higher premium to capital protect the premium to some degree- from 25%-100%. This simply means that the provider will guarantee that they will at least pay out in some form or other (income or in the event that the total income paid by date of death, is less than the amount protected, a balance payment) the amount protected.

• Even if indexation is selected, either the cost of care, or level of care required may increase faster or the rate of any state or occupational pension income being received may not increase at the same rate, resulting in a shortfall being created.

• The income produced will be counted as income as far as any means tested benefits are concerned and could reduce or disqualify you from receiving /continuing to receive such benefits.  Please note it will not affect any benefits based on disability alone, such as Attendance Allowance or Disability Living Allowance.

• There is no scope to change the arrangement once established, although a further plan can be taken out to top it up if increased benefits are required later.