Can you afford to get old?

Brian Tora looks at financial products that promise to protect you if you need long-term care

In the early 1970s there was a house price boom stimulated by Government.It led many advising on financial matters to look at what might happen to a generation inheriting properties largely devoid of debt. An accountancy firm was prompted to run an advertising campaign displaying a tanker delivering champagne to a terraced house.You could not run a campaign like that today.

Housing no longer seems the risk-free capital growth investment it once was. Despite more people owning their own homes, the percentage of the national wealth that these houses represent has started to decline. The downward pressure on house prices is partly down to government action, but demographics come into it. Family units are more dispersed than in the early 1970s and, more important, we can all expect to live longer. Not only might your inheritance be less than you might previously have imagined, but there could be other demands on it as well.

We all know the Government is trying to withdraw from many services hitherto provided by the state. Long-term care is not the least of these. Perhaps the biggest worry facing the elderly today is how they might afford the kind of care necessary if they live to a ripe old, but infirm, age. In many cases a home may have to be sacrificed to meet the cost. Now there is an increasing array of products to provide a degree of protection against the kind of bills that long-term care can produce.

The need is real. State funding for long-term care provided for 12,000 people in 1979. Today 200,000 souls are looked after. Two years ago an estimated 40,000 homes were sold to pay care bills. Less than 16 per cent of the population were aged 65 or over last year. Within 40 years this will have risen by 50 per cent. Perhaps even more worrying is that around 55 per cent of all people aged 65 or over have a long-standing illness which in some way limits their activities. Paying for the means to cope with these disabilities will be an increasing problem.

It is possible to insure against the cost of care which arises as a result of losing your faculties, though it is important to understand that what you may consider a disability may not be viewed so favourably by the insurers. But at least the opportunity to provide for long-term care assistance now exists, without having to rely on the state.

Insurance may not be cheap, but it is often not as expensive as some expect. In most cases it is better than risking your home. And there are schemes available that use homes as a means of avoiding the controversial Community Care Act. This Act means that elderly people who have assets that exceed pounds 8,000 must pay for their nursing home care. As this figure includes the family home, many have found that they have little choice but to sell their home. This can be a confiscatory tax. No wonder inheritance prospects are receding.

Both PPP and Commercial Union offer single premium and regular payment policies that will provide a monthly income to cover lifetime care costs. A male aged 50 can expect to pay around pounds 40 a month to achieve a pounds 1,000 monthly benefit, with escalating cover commensurately higher. Women pay more.

Scottish Amicable prefer the single premium approach. More correctly, if money is handed to them to manage, they will divert part of the return to provide the cover needed to meet long-term care payments, with the capital only being used in extremis. The insurance companies certainly view this as an important market to tackle. They realise that the middle classes in particular will feel threatened by the call that these provisions might make on hard-won assets.

Do

Make a will and create a power of attorney. If your assets exceed the tax threshold, think about making gifts ahead of time to reduce the liability.

Consider taking out life assurance to pay any unavoidable tax liability, and make sure all policies are payable into a trust not your estate.

Don't

Give too much away and leave yourself short, or leave it too late and risk being overtaken by events.