Your money: How to hold on to your assets

A lifetime's wealth could quickly be gobbled up if you need long- term care in old age. Andrew Geldard finds out how you can pay now and save later
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The Independent Online
Picture this scenario: you spend 40 years in work, pay off the mortgage and sit back to enjoy a long and contented retirement on a comfortable pension. Then illness strikes and in the space of a few years, your savings are depleted and your most prized asset, the home, has to be sold to pay for long-term care. This is a reality that affects nearly 40,000 people each year.

For many, the issue of who covers the cost of any future care is a low priority behind more immediate concerns such as mortgages, pensions and the general cost of living. Yet with more than half of those over 65 suffering from a disabling condition and one in four confined to their homes, the possibility of needing long-term care, either at home or in a nursing home, cannot be ignored. And for most, the funding will be expected to come out of their own resources rather than from the taxpayer, although the state will continue to provide a safety net for the very poor.

At present, local authorities only have to pay care fees in full where the individual's assets, including the family home, are less than pounds 10,000. For those whose assets exceed pounds 16,000, the authority has no obligation to pay anything. People who fall outside this net have to fund their care costs from investments, savings, pension income and, ultimately, the house. Considering that the cost of being in a nursing or residential home can be between pounds 15,000 and pounds 30,000 a year, while a care assistant in your home for two hours each day will be pounds 5,000 a year, a lifetime's wealth and your children's inheritance could be eroded very quickly.

To encourage more people to take out long-term care insurance from the private sector, the Government has announced proposals for a partnership between the state, the individual and the financial services industry. Under the scheme, for every pounds 1 of private care insurance taken out, the elderly will be allowed to protect pounds 1.50 of their assets. In other words, anyone who took out a policy providing pounds 30,000 towards long-term care costs would have a further pounds 45,000 of their assets protected from the means-test applied by the local authority. However, there is no guarantee that this will become law if Labour win the election.

Long-term care insurance can be categorised into two types: immediate care where you are already ill and need cover to start immediately, which is usually funded by selling the house and buying an annuity to pay costs, or pre-funding, where you pay a lump sum or regular premium while healthy which triggers benefit payouts if and when the need arises.

It is the latter policy that the private sector is aiming at people in the 50-plus age group. Companies such as PPP, Commercial Union, Bupa and Abbey Life provide plans that pay for professional care when the policyholder cannot undertake certain "daily activities" such as walking, bathing and using the lavatory. Once cover is triggered, they will receive a pre-set amount of tax-free benefits each month for care at their home or be moved to a residential or nursing home, whichever is deemed in their best interests. For example, PPP Lifetime's Premier plan will pay out a pre-determined level of benefit to someone who cannot perform three out of six daily activities. To qualify for pounds 1,000 a month benefit, a man aged 65 must pay pounds 85 a month or a single premium of pounds 11,654.

If that same person had Commercial Union's Well Being Premier plan, he would need to pay a single premium of pounds 12,565 or a monthly contribution of pounds 91.18 to receive pounds 12,000-a-year benefit. One bonus with this plan is that if a person contributes monthly for a while but then has to stop, those contributions will still have built up a certain amount of cover should it be needed.

These schemes do not just appeal to those nearing retirement, according to Bryan Fisher of the IFA company Berkeley Financial Planning, "A number of my clients have taken out long-term care policies for their ageing parents in order to safeguard their quality of life as well as ensure their assets remain within the family."

So far, take up of long-term care insurance has been low. A major factor for this is a lack, until recently, of clear government proposals for the market. Other reasons include insufficient awareness for care insurance, high premiums and the notion that the state will be on hand to provide full support when needed. Don't count on that last point.

PPP, 0800 585059, Commercial Union, 0345 440000; Bupa, 0800 600 500; Berkeley Financial Planning 01203 555240.

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