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Shelter for the winter years

PRIVATE HEALTH; A SPECIAL REPORT : Jane Suiter reports on a variety of long-term plans
The prospect of being old and bed-ridden, relying on your family for support, is a nightmare for many people. And increasingly, since the Community Care Act came into force in 1993, it is becoming a reality. It is now the family which is obliged to provide for its old folk.

Add to this the advances in health care, which mean longer life expectancy, and it is unlikely the state will go on providing even the minimum amount it does now.

The number of adults needing to be looked after in a nursing home is set to double to 1.2 million in the next 40 years. According to a recent survey 18 per cent of people believe they will have to pay for their care in old age but in reality the experts say this figure could be as high as 60 per cent.

Those with assets of pounds 8,000, including the value of a home, are no longer eligible for assistance from the state when they find themselves unable to cope alone. They, or their families, must pay .

Long term care cover is the financial companies' answer to this problem. The insurance will pay for care in a nursing or retirement home or even for a nurse to attend at home.

Insurance comes in a variety of forms. The first can be bought by a lump sum payment to provide immediate healthcare benefits. This is suitable for the elderly person who needs care now. Eagle Star's plan which can be used in these circumstances is made up of a series of policies which are gradually cashed in to pay for care. Commercial Union and PPP offer similar plans.

The second, and more usual route, is the pre-funded version. Big players in this market are Commercial Union, Hambro Assured, Prime Health, PPP Lifetime and Scottish Amicable European.

These policies can usually be paid for with lump sums, regular payments or a combination of both. Minimum monthly payments range around pounds 20 to pounds 30 while minimum lump sums are between pounds 2,500 and pounds 10,000.

PPP will accept a minimum lump sum of pounds l,000 where regular premiums are paid while Commercial Union still demands pounds 2,500.

Gary Jefferies, an independent adviser with Tunbridge Wells-based Warwick Leigh, says these products are excellent for those approaching retirement or who have just retired. The lump sum part of a pension can then be put to good use, he says.

"This allows them to provide for a predetermined level throughout their lives and ensures the remaining capital can be invested," he says. "Otherwise they have to maintain high levels of savings should they need home care or nursing home fees later in their lives."

However, one problem with many of these plans is that they are simply insurance. If you do not need long term care the plan will be worth nothing. Scottish Amicable is the exception. It pays for itself by taking the payments for the insurance out of the growth in an investment bond.

The plans are also tax efficient. Money grows untaxed and is then paid directly to the care provider.

The minimum age for taking out the plan depends on whether or not it is to pay for immediate benefits. Most of the immediate care plans have a minimum age of 60.

For future benefits the minimum age ranges from 40 for Commercial Unions' Well-Being Insurance to 21 for PPP and 17 for Scottish Amicable European, although most companies readily admit their books are not exactly full of 20 somethings clamouring for long term care.

The maximum enrolment ages are correspondingly higher with the immediate care plans. Commercial Union accepts people up to age 90 and PPP to age 100. For the pre-funded version the limits range from 75 for Commercial Union to 79 for PPP.

All the plans pay out according to disability. But there are big differences between companies and it is important to check the small print.

Prime Health uses a points system where levels of disability are allotted certain points. Benefits are paid when points exceed a certain threshold. Commercial Union and PPP both pay out half your benefit for a reduced degree of disability.

You can also choose to have cover which only pays for institutional care, which saves money. Another way to cut costs is to opt for cover which only lasts for a few years. Research in Canada and France shows the average length of time spent in institutions is less than two years and 95% of claims last less than five years. However, this would be cold comfort for anyone who did need the cover for longer.

Most of the plans also have a deferred period. when the insurance will not pay out. These range from 90 days with Scottish Amicable to 13 weeks with PPP.

Like most insurance, premiums go up with age and are usually higher for women than men.

An average 55-year-old man will pay pounds 54 a month for basic cover with Commercial Union for a pounds l,000 a month benefit, whereas a woman the same age would pay pounds 77. Prime Health does not distinguish between men and women and can sometimes therefore work out cheaper for women.

Younger people are more likely to have long term care as a bolt on to their permanent health insurance(PMI) or critical illness policy.

Bupa's financial health protection plan basically converts to a long term care plan once the policyholder reaches retirement as does Lincoln National's plan.

J Rothschild International provides the insurance under its Lifetime Cover Plan and Pegasus offers it under its Combined Health Plan.