Who cares when you get old?

Hugh Thompson looks at the insurance options available to cover long-term needs

The Government's long-awaited consultation document on the future of long-term healthcare for the elderly and infirm was published yesterday. It proposes a partnership between individuals, insurance companies and the state to cap the cost of insurance and make it possible for individuals to get care without having to sell their homes to pay for it.

Individuals will be able to buy long-term care insurance which will pay for home, residential or nursing care, if and when it becomes necessary, for up to three years. The individual may then have to pay his or her own costs but the state will take over before individuals are forced to sell their homes.

An estimated 40,000 homes a year are currently being sold to meet the costs of long term care. Without state intervention that will mount, as not only the number of people aged 75 and over rises from 3.9 million now to 6.3 million in 2030. Already 42 per cent of the over-65s report they are suffering from a limiting long-term illness, so the demand for care is going to rise dramatically.

A recent survey showed that two in three expect family and friends to look after them should they become dependent. But traditional care is declining. Divorce, increased mobility, working women, a reduction of family ties and, perhaps, an increased awareness of self and selfish needs have reduced the supply of family help.

The Government, realising that it can no longer afford to foot an open- ended bill, especially with a declining tax-paying workforce, is looking more and more to insurance for long-term care as the answer.

The insurance industry uses a chilling set of initials, ADLs, to calculate when the benefits pay out begins on any long-term care. ADLs are the "activities of every day living". The big six are considered to be walking, dressing, feeding, using the toilet, mobility and transferring from bed to chair. Develop permanent inability in any three and you qualify to claim as disabled in some degree. Typically, the available insurance cover is designed with a view to allowing the insured to stay in control of his or her capital. The double indemnity in these situations is a long-term illness that is not only painful in itself but exhausts not one but several generations' capital.

One of the first offers in this market was the Long Term Care Bond launched by Scottish Amicable in 1994. Here the investor pays a one-off sum into a bond that is invested in a European investment fund not subject to UK tax. A level of care cover is selected. The average age of the investor is 65, the average amount invested is pounds 27,500 and buys annual cover of pounds 11,000. A claim can be made when an investor can no longer perform three ADLs.

A typical scenario is pounds 25,000 being invested. Then, after 10 years, the insured goes into care. By then, the fund is worth pounds 60,000, of which pounds 35,000 is placed in a deposit fund and is used to pay care costs for a maximum of five years. After that, Scottish Amicable pays all future long-term costs. Statistics suggest that the average stay in long-term care is less than five years. In which case, the original pounds 25,000 and anything left over from the pounds 35,000 stays intact for the estate.

Also in the market are PPP, Commercial Union, Hambro Assured and Prime Health. The proof that this market is really - dare one say it - coming of age (not least as the Government cuts back its own commitment and moves to encourage self-provision) was the recent launch of Bupa FutureCare. Subscriptions can be on a one-off or regular basis and subscribers can opt for moderate or continuous care either for three years or for the rest of their lives. A 65-year-old man going for continual care for the rest of his life (payments kick in when the inability to handle two ADLs begin) pays either pounds 59.95 a month or a single premium of pounds 8,519. For women, the costs are considerably higher as most of those in long-term care are women (who tend to outlive the males). Cover for moderate care, since it is more commonly needed, is also more expensive.

Benefits are paid after a waiting period of three months. Increasing the flexibility of cover, participants can choose to extend the waiting period to 12 or 24 months.

No two long-term care policies are exactly the same. Prime Health Home Health Care policies have been designed to look after the customer as old age approaches, and includes 21 or 28 hours a week (depending on level of cover) care by a registered nurse plus a range of private day care and surgical procedures.

PPP's lifetime care policies are more flexible and can be based on either a lump sum or regular (monthly or annual) premiums, or a combination of the two. The policies are designed to offer financial protection. There is an upper age limit of 84 for single premium payments. As in other policies, the monthly benefit is paid tax-free to the care provider. The monthly benefit can be paid throughout the insured's life or limited by the plan paying out a maximum sum of money.

The Government's new initiative will take at least two years to implement, but companies such as PPP have promised to adapt existing plans and refund any savings to the customer.

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

PROMOTED VIDEO
Life and Style
Suited and booted in the Lanvin show at the Paris menswear collections
fashionParis Fashion Week
Arts and Entertainment
Kara Tointon and Jeremy Piven star in Mr Selfridge
tvActress Kara Tointon on what to expect from Series 3
Voices
Winston Churchill, then prime minister, outside No 10 in June 1943
voicesA C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
News
i100
News
An asteroid is set to pass so close to Earth it will be visible with binoculars
news
Arts and Entertainment
Benedict Cumberbatch has spoken about the lack of opportunities for black British actors in the UK
film
News
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

    Recruitment Genius: Tax Assistant

    Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

    Recruitment Genius: Outbound Sales Executive - OTE £25,000

    £16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

    Ashdown Group: Java Developer / J2EE Developer - Watford - £45,000 - £47,000

    £45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...

    Ashdown Group: Marketing Product Manager - (Financial Services) - SW London

    £35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

    Day In a Page

    Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

    Celebrities call on David Cameron to take more Syrian refugees

    One young mother tells of torture by Assad regime
    The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

    The enemy within

    People who hear voices in their heads are being encouraged to talk back
    'In Auschwitz you got used to anything'

    'In Auschwitz you got used to anything'

    Survivors of the Nazi concentration camp remember its horror, 70 years on
    Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

    Autumn/winter menswear 2015

    The uniforms that make up modern life come to the fore
    'I'm gay, and plan to fight military homophobia'

    'I'm gay, and plan to fight military homophobia'

    Army general planning to come out
    Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

    What the six wise men told Tony Blair

    Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
    25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

    25 years of The Independent on Sunday

    The stories, the writers and the changes over the last quarter of a century
    Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

    Homeless Veterans appeal

    As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
    Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

    Smash hit go under the hammer

    It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
    Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

    The geeks who rocked the world

    A new documentary looks back at origins of the computer-games industry
    Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

    Belle & Sebastian is taking a new direction

    Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
    America: Land of the free, home of the political dynasty

    America: Land of the free, home of the political dynasty

    These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
    A graphic history of US civil rights – in comic book form

    A graphic history of US civil rights – in comic book form

    A veteran of the Fifties campaigns is inspiring a new generation of activists
    Winston Churchill: the enigma of a British hero

    Winston Churchill: the enigma of a British hero

    A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
    Growing mussels: Precious freshwater shellfish are thriving in a unique green project

    Growing mussels

    Precious freshwater shellfish are thriving in a unique green project