A high price for peace of mind

John Chapman wonders if long-term care insurance is worth the hefty premiums

Most of us will move quickly from independence to dying. Some, however, will go through a period of needing care. The costs of such care may be substantial. Annual charges at residential homes vary between pounds 15,000 and pounds 20,000, while nursing homes charge between pounds 20,000 and pounds 25,000 a year.

Since the passing of the Community Care Act in 1993, local authorities can take the costs of such care from a person's income, and from any assets above pounds 10,000. Unless you have a spouse or an aged or incapacitated relative living with you, even your house could be taken to cover care costs.

What are your chances of needing care? The position is not clear. Insurers speak variously about the likelihood being one in six or even one in four. A more neutral estimate comes from Richard Best in a paper by the Rowntree Foundation: "There is only a one in 20 chance that you, on reaching pensionable age as a man or a woman, will require residential or nursing care. Even if you live to 80 or 85 the chances are only one in four or one in five."

The average spell in a residential home is three years and in a nursing home about eighteen months. Yet a minority of those needing care live for much longer periods and the effect on their assets can be dramatic.

What can we do? Nothing, is one option. If your family is well off they may not need your assets. Alternatively, your family may look after you. This is quite common. Love and duty are no doubt the main factors, but there is now an interest in preventing inheritable assets being swallowed up by local authorities. A further option is to give your assets away. There is little sense in becoming the richest man in the churchyard, particularly when your children have real needs. But gifts obviously given to avoid care costs could be clawed back by the local authority.

Finally, there are "long term care" insurance policies (LTC). There are about a dozen pre-funded policies, but the premiums are substantial. To purchase cover of pounds 1,000 a month a man aged 55 might pay premiums of pounds 50 to pounds 70 a month, rising to pounds 80 to pounds 130 a month by age 70 (before inflation). For women, premiums are a third higher. There are also "immediate cover" policies, which provide impaired lives annuities - annual income paid out to people who are ill and may die within a short space of time.

These might cost pounds 35,000 to pounds 40,000 for men, and pounds 50,000 to pounds 55,000 for women. Payouts under such policies are only triggered if you fail tests on two or three activities of daily living - mobility, washing, dressing, feeding, toiletry and continence.

With such charges, it is no surprise that the LTC insurance market has not taken off. Some 20,000 or 30,000 policies have been sold.

The previous government suggested a "partnership approach". For each pounds l of insurance cover purchased a further pounds l.50 of assets would be protected. Someone who bought pounds 40,000 of LTC cover would have pounds 70,000 protected from local authorities. New Labour has backed away from this commitment and has promised a Royal Commission on the subject instead.

Meanwhile the debate has been further confused by a decision of the courts that local authorities are not obliged to provide care if they have insufficient money. But it is difficult to envisage any local authority leaving its aged to fester.

If you are now considering the risks of facing a period of care, do not to be sweet-talked into buying LTC policies through sales-pitches about the availability of helplines, care counsellors and the like. If you are worried about the future as you get old, it is important first to talk to your family, your local social services, and bodies like Age Concern.

If you do have assets to protect, buying LTC insurance is an option, though expensive. The important thing is not to pay pounds 1,000 a year or more just for the "peace of mind" that could be obtained for nothing by other means.

John Chapman, formerly a senior official at the Office of Fair Trading, is the author of several hard-hitting reports on the financial services industry

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
Finacial products from our partners
Property search
Put the phone down on the coldcallers who see pension liberation as an opportunity to liberate your pension from you

The 'no-hang up' scam targets vulnerable people - and your bank may not protect you

Unscrupulous crooks prey on older people to trick them out of their savings

Money Insider: How to make credit cards pay

Andrew Hagger reveals how to get the most from your plastic

Questions of Cash: My 'perfect travel companion' from the Post Office was a waste of money

One reader purchased the Post Office Travel Money Plus Card for a motoring holiday but discovered it can't be used at self-service petrol stations or autoroute toll booths

Continuing low interest rates are encouraging more people to switch to interest-only mortgages

Interest-only mortgages return to give more flexibility to borrowers

The credit crunch put a temporary end to these once-popular mortgages. But lenders are waking up to rising demand and relaxing their rules

EU to scrap roaming charges in 2017: European Commission under fire for taking so long to act

UK consumer groups complained that British holidaymakers face another two years of mobile phone misery before the law comes into effect

On the money: Yorkshire building society has demonstrated that it is taking the P2P industry seriously

Is peer-to-peer lending a risk worth taking?

The P2P industry must do more to shake off an unjustified image of being too complex and risky for the everyday saver, says Andrew Hagger

Generating grievances: Scottish Power's Longannet station in Fife

Questions of Cash: Scottish Power says it's sorry - again and again

Six of the energy company's customer have cause to blow a fuse this week

Will Patisserie Valerie be the portfolio's sweet spot?

Derek Pain: 'Patience is a virtue but maybe I should cut and run'

Derek's portfolio is currently suffering because of his failure to be more ruthless

There are now more than three million people in “severe problem debt”

Debt managers are misleading vulnerable people, warns watchdog

One debtor was given a repayment plan that would have taken 125 years to repay

Challengers are smashing the traditional high street banks when it comes to offering decent savings rates

Ignore the new breed of savings institutions and you'll lose interest

NatWest has ripped up its pledge to never be the last bank in town

NatWest pledged five years ago it wouldn't close the last bank in town. Now villagers have been told the branch shuts in September

When the last bank closes, local shops quickly go out of business

Under new state pension rules we will all be much worse off

Why did no one notice? The Government hides behind complexity, says Neasa MacErlean

Bogus Islington landlord scams public for £20,000 in fake deposits

It’s not just Islington... Simon Read warns renters and landlords about a nationwide fraud operation

Questions of Cash: The paperwork wasn't right so I was left high and dry with a broken washing machine

A reader encountered a problem with a Currys washer/dryer care plan

Borrowers should steer clear of established providers to get the best rates

Interest rates have never been cheaper if you want a five-figure personal loan but for lower-value loans it's a very different picture

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Mortgage Advisor - OTE £95,000

    £40000 - £95000 per annum: Recruitment Genius: This is an exciting opportunity...

    SThree: Trainee Recruitment Consultant

    competitive: SThree: Are you passionate about sales?Do you have a keen interes...

    Recruitment Genius: Loan Adviser - OTE £30,000

    £17000 - £30000 per annum: Recruitment Genius: This is an exciting opportunity...

    Recruitment Genius: Sales Assistant / Buyer

    £15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

    Day In a Page

    Greece debt crisis: EU 'family' needs to forgive rather than punish an impoverished state

    EU 'family' needs to forgive rather than punish an impoverished state

    An outbreak of malaria in Greece four years ago helps us understand the crisis, says Robert Fisk
    Gaza, a year on from Operation Protective Edge: The traumatised kibbutz on Israel's front line, still recovering from last summer's war with Hamas

    Gaza, a year on from Operation Protective Edge

    The traumatised kibbutz on Israel's front line, still recovering from last summer's war with Hamas
    How to survive electrical storms: What are the chances of being hit by lightning?

    Heavy weather

    What are the chances of being hit by lightning?
    World Bodypainting Festival 2015: Bizarre and brilliant photos celebrate 'the body as art'

    World Bodypainting Festival 2015

    Bizarre and brilliant photos celebrate 'the body as art'
    alt-j: A private jet, a Mercury Prize and Latitude headliners

    Don't call us nerds

    Craig Mclean meets alt-j - the math-folk act who are flying high
    How to find gold: The Californian badlands, digging out crevasses and sifting sludge

    How to find gold

    Steve Boggan finds himself in the Californian badlands, digging out crevasses and sifting sludge
    Singing accents: From Herman's Hermits and David Bowie to Alesha Dixon

    Not born in the USA

    Lay off Alesha Dixon: songs sound better in US accents, even our national anthem
    10 best balsamic vinegars

    10 best balsamic vinegars

    Drizzle it over salad, enjoy it with ciabatta, marinate vegetables, or use it to add depth to a sauce - this versatile staple is a cook's best friend
    Wimbledon 2015: Brief glimpses of the old Venus but Williams sisters' epic wars belong to history

    Brief glimpses of the old Venus but Williams sisters' epic wars belong to history

    Serena dispatched her elder sister 6-4, 6-3 in eight minutes more than an hour
    Greece says 'No': A night of huge celebrations in Athens as voters decisively back Tsipras and his anti-austerity stance in historic referendum

    Greece referendum

    Greeks say 'No' to austerity and plunge Europe into crisis
    Ten years after the 7/7 terror attacks, is Britain an altered state?

    7/7 bombings anniversary

    Ten years after the terror attacks, is Britain an altered state?
    Beautiful evening dresses are some of the loveliest Donatella has created

    Versace haute couture review

    Beautiful evening dresses are some of the loveliest Donatella has ever created
    No hope and no jobs, so Gaza's young risk their lives, climb the fence and run for it

    No hope and no jobs in Gaza

    So the young risk their lives and run for it
    Fashion apps: Retailers roll together shopping and social networking for mobile customers

    Fashion apps

    Retailers roll together shopping and social networking for mobile customers
    The Greek referendum exposes a gaping hole at the heart of the European Union – its distinct lack of any genuine popular legitimacy

    Gaping hole at the heart of the European Union

    Treatment of Greece has shown up a lack of genuine legitimacy