As people are living longer, the way we fund our care in later life has become a controversial topic, for both families and the government.
The amount of money you’ll personally have to contribute to your care will vary widely and depend on a number of factors: how long you require care; what type of care you need, depending on your health and mobility; how much local support is available, including NHS and local authority funding; and the value of your savings and assets. Most people will have to make a substantial contribution to their care.
In the past you could buy long term care insurance policies to protect you from these costs. They are no longer available from UK insurers, but you have other insurance options, including annuities.
How much does long term care cost?
Long term care can be very costly, and difficult to budget for, given the near impossibility of predicting how much care you’ll require and for how long.
In 2010, a government commission found that the average cost of a residential, nursing care home place for a senior is £26,000 a year, and the average cost of at-home care is £8,000 a year It’s likely that costs have increased since then. The average stay in a residential facility is two years, but some conditions, such as dementia, can mean one may need complex care for a number of years.
Care charges can rack up. A 2016 report from the Chartered Insurance Institute (CII) found that the average man over 65 will spend around £37,000 on later life care, while the average woman of the same age will spend £70,000, owing to their longer life expectancy. However, research has found that one in 10 people at age 65, face future lifetime care costs in excess of £100,000.
Although the government does provide help, it’s means-tested and varies locally. In England, if you hold assets valued above £23,250, you’re expected to fund care yourself. A 2016 Age UK report found that 41% of residents in UK care homes are paying their own way.
What were long term care policies?
Previously you could buy long term care policies to cover the cost of your late in life care. These were also called pre-funded care plans.
With this type of policy, you paid either a lump sum or monthly premiums, which could be adjusted upward during reviews at set intervals. These policies then offered a payout to cover the cost of care within your own home or a residential care facility. To claim, you had to demonstrate you were unable to perform daily activities, as defined by the insurer.
Plans of this type are no longer available for purchase. But there are other insurance options which can help to cover the cost of your care.
What are the insurance alternatives?
- immediate needs annuity, also called care fee annuities: plans which pay out a guaranteed income for life and can be used to cover the cost of care fees, in exchange for a one-off lump sum premium. To apply, you need to be assessed as needing such care immediately. Policies can be set to either deliver level payouts or can be index-linked to rise over time. These payments can be used to fund both residential or in-home care and can be paid either to you, to a carer, or directly to a care home.
- deferred needs annuity: policies which work similarly to immediate needs annuity, paying out a regular income in exchange for a lump sum, but rather than funding care you need immediately, they pay out after a few months or years. A deferred care annuity is usually cheaper than an immediate care plan.
- critical illness cover: policies that pay out a lump sum if you become disabled due a serious illness or accident. These are usually added onto life insurance policies. However, most life insurance policies and the critical illness component will have lapsed by the time people need long term age-related care.