People are living longer and the population in the UK is growing. With an ageing population the need for long term care is increasing and therefore the need to plan for it is also becoming increasingly important. With long term care you don’t know what will be required and for how long, so it can be a real minefield.
Long term care in a care home or nursing home is very expensive and can quickly erode your savings, including the equity in your property. For example, if you are a home owner with savings and a reasonable pension, then if you (or your partner) need care, either at home or in a care home, it is likely that you will incur significant costs, whilst not getting much, if any, help from the State until your savings have been reduced.
Residential care costs vary a lot and depend on the type of care; basic care (for the infirm with no medical conditions) starts at around £300+ pw, rising as more medical and nursing needs arise.
Under the Charges for Residential Accommodation Guidelines (CRAG), a person with more than £23,250 in capital assets is usually assumed to be able to arrange their own care. Furthermore, homeowners who live alone and do not meet certain CRAG criteria would be expected to sell their home to cover the costs of long term care services.
Having a financial plan in place in the event that long term care is needed means that you can put measures in place to protect your assets and ensure that you would have enough income to cover you.
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Long Term Care Insurance
This is an insurance product that is designed to provide funds for the costs associated with long term care. It can cover a person whether they are being cared for at home or in a care home.
Other insurance policies which can contribute towards the cost of care include private medical insurance and health cash plans, which can contribute towards covering some financial expenses.
Risk based long term care is a standalone risk-based product that pays out a regular sum if an individual requires continuous care. The level of cover is selected by the applicant at the outset.
Long term care annuity
Although not that common, a Long Term Care Annuity is another option. These are regular payments made to the individual based on a single payment they made when they took out the policy.
Another potential source of income could be an equity release. This can be in the form of a lifetime mortgage where a loan is secured on the property value or future value of the property. The borrowers retain the right to live in the property for the duration of their life.
Alternatively it can be in the form of a home reversion plan. This is where part or the entire home is sold to a company. In return, a lump sum or annuity is paid and the individual retains a lifetime tenancy until either their death or the house is sold.
Immediate care products are attractive because living for a long time in care is expensive and could exhaust an individual’s resources.
These products are not cheap and are a last resort, the main purpose of which is for couples to protect the surviving partner from financial worries.
Financial planning for long term care is a specialist area and at Cotswold Independent Financial Services our experts are on hand to talk to you about the options open to you. We will also talk you through any practical measures that need considering such as:
Protecting your assets
There are strategies which can be used to minimise what you need to pay in terms of how your assets are structured and thus counted in your assessment.
The benefits of long term care policies will be paid free of tax when made directly to a care home provider. However, no tax relief is available for lump sums paid into deferred care plans.
Considerations here include looking at your existing investment portfolios and the investment objectives, ensuring that these are readdressed to help fund income for care costs. It is also important to identify how income from a portfolio will be assessed by a local authority.
Changes to pension plans allow more flexibility in providing an income for care. There are a number of options available, including purchasing an annuity or taking 25% of the fund as tax-free cash after the age of 55. This could then be used to self-fund care in advance.
At Cotswold Independent Financial Services, we will help you to put plans in place so that you can be confident you will get the care and support you need if required.