Have a capital old age ...

There are several options open to people who want to set aside money for long-term nursing care without jeopardising their inheritance. By Roddy Kohn

Looking good and feeling great at 72 is something Jane Gasrowoski can proudly claim. Despite this, however, Mrs Gasrowoski feels that she is now at a stage in life where consideration has to be given to the possibility of her needing long-term care, either at home or in a nursing home.

It does not surprise her to learn that there are different ways to plan for this type of problem. And in spite of those insurance companies involved in long-term care insurance, who would have her believe that every septuagenarian in the land is likely to face this need, Mrs Gasrowoski is just as concerned about what happens to any money she pays out if she doesn't need to claim.

She has capital on deposit of pounds 30,000, a house worth pounds 75,000 and pensionable income of pounds 100 per week. She knows that because she has assets in excess of pounds 16,000, no state assistance will be given to help pay for her needs.

Having already looked at a number of nursing homes, she has found that typical costs would be around pounds 425 a week, and she would like an allowance for personal expenses of, say, pounds 20 a week. Taking the interest into account from her building society capital and her pension income, this means there is potentially a shortfall of pounds 316 per week, if she was in need of full- time nursing home care, and those nursing home fees are likely to escalate, probably considerably in excess of inflation.

Having lived through the Depression, Mrs Gasrowoski is not only cautious but feels that the security provided by owning her own home is particularly important. To a certain extent, this simplifies her choice because it leaves her to make one of two decisions.

She can choose to make a lump sum payment to an insurance company, to meet the anticipated shortfall. This lump sum payment is likely to be in the region of pounds 16,000 to pounds 18,000, depending on the benefit required and the company chosen.

Before she can claim, however, most companies will require that she is unable to carry out three specific daily activities, such as washing, dressing, feeding, mobility etc. Some companies offer the opportunity to claim when just two activities cannot be carried out, but in such cases generally only 50 per cent of the insured benefit will be paid. However, the reality for most people, Mrs Gasrowoski included, is that 50 per cent of the benefit would not cover the cost incurred if she had to be treated in a residential home.

Alternatively, some insurers offer the opportunity to pay monthly or annual premiums at just over pounds 2,000 per year, which continue unless and until she needs to make a claim. This is not an unattractive proposition because the payments could be met predominately from the interest on the building society deposits. Mrs Gasrowoski's capital would be reduced by about pounds 500 per year and, in theory at least, this would last 30 years before she might have to think about using the equity in her home.

If she invested some of the existing capital in Corporate Bond PEPs, she could withdraw the income annually (typically around 8.25 per cent net), to contribute towards the annual insurance premiums. While this type of PEP involves risk, it is generally considered to be low risk and would enable her to receive interest almost two and a half times the net rate she is receiving on deposit.

The Secretary of State for Health, Stephen Dorrell, is expected to announce a partnership arrangement soon that will increase the amount of assets older people can have before they have to pay their own long-term care bills, provided they have taken out a long-term care insurance policy to provide the initial costs of care. In this case, making monthly or annual insurance premiums will avoid the risk of commuting a lump sum now only to find out that changes in government policy may reduce the cost of providing cover and remove the need to pay such a high lump sum.

Meanwhile, how does she protect her capital in case she dies without making a claim? A single premium payment to an insurer in return for guaranteed fee payments when a claim arises undoubtedly gives peace of mind. Most insurers also require clients to take out five-year term assurance so that in the event of death before a claim some or all of the capital can be returned. Terms vary from insurer to insurer, but they all seem to agree that after five years no further life cover is provided and therefore no capital can be returned even if the policy-holder dies without claiming.

In her particular circumstances, making annual premium payments, at least in the short term, would give her both the peace of mind and assurance that if she is unable to look after herself some provision can be made without diluting her estate. On the other hand, if she lives too long this could prove to be expensive when compared with the single premium.

An alternative would be to look at a "whole of life" contract, which provides a sum of money on death that could be written under trust for the benefit of her son, John. Mrs Gasrowoski would then be able to defer making any decision about her capital or her house at the moment in the full knowledge that the costs for her long-term care could be made from the sale of her property while still leaving John with his inheritance, The cost for this type of cover is typically pounds 1,800 a year.

In her case, however, the cost is very similar to the long-term care premiums and the life assurance premiums would very likely rise at the 10-year review. The Inland Revenue may also not regard it as normal affordable expenditure and this could, in effect, disallow the tax-exempt benefit payable to her son.

The writer is principal of the Bristol-based independent financial advisers Kohn, Cougar.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
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

    Guru Careers: Pricing Analyst

    £30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

    Guru Careers: C# Project Team Lead

    £55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

    Day In a Page

    Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

    The 161-page dossier that exposes Fifa's dark heart

    How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
    Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

    Exclusive interview with Tripoli PM Khalifa al-Ghweil

    'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
    Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

    Raymond Chandler's Los Angeles

    How the author foretold the Californian water crisis
    Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

    Art attack

    Chinese artist who posted funny image of President Xi Jinping facing five years in prison
    Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

    Cher is the new face of Marc Jacobs

    Alexander Fury explains why designers are turning to august stars to front their lines
    Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

    'I'm climbing Ben Nevis for my daughter'

    Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
    10 best wedding gift ideas

    It's that time of year again... 10 best wedding gift ideas

    Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
    Paul Scholes column: With the Premier League over for another year, here are my end of season awards

    Paul Scholes column

    With the Premier League over for another year, here are my end of season awards
    Heysel disaster 30th anniversary: Liverpool have seen too much tragedy to forget fateful day in Belgium

    Liverpool have seen too much tragedy to forget Heysel

    Thirty years ago, 39 fans waiting to watch a European Cup final died as a result of a fatal cocktail of circumstances. Ian Herbert looks at how a club dealt with this tragedy
    Amir Khan vs Chris Algieri: Khan’s audition for Floyd Mayweather may turn into a no-win situation, says Frank Warren

    Khan’s audition for Mayweather may turn into a no-win situation

    The Bolton fighter could be damned if he dazzles and damned if he doesn’t against Algieri, the man last seen being decked six times by Pacquiao, says Frank Warren
    Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

    Blundering Blair quits as Middle East peace envoy – only Israel will miss him

    For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
    Fifa corruption arrests: All hail the Feds for riding to football's rescue

    Fifa corruption arrests

    All hail the Feds for riding to football's rescue, says Ian Herbert
    Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

    The Kurdish enclave still resisting the tyranny of Assad and Isis

    In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
    How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

    How I survived Cambodia's Killing Fields

    Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
    Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

    How Stephen Mangan got his range

    Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor