Case study

clock

Mrs Roberts is a 65-year old widow. She is in good health, but wants to make sure she can still leave an inheritance for her family should she need care in a nursing home. The nursing home she would choose to enter should she need it currently costs £550 a week. Her property has been valued at £180,000 and she has £35,000 in savings. She also earns a net annual income of £11,000. What are her LTC insurance options?

Caroline Spiers, Eric Rawlins Insurance

Mrs Roberts should consider long term care (LTC) insurance because her assets amount to well over £19,500 – the current ceiling for local authority assistance. Unless she insures herself, the fees will soon reduce both her savings and the eventual proceeds from the sale of her home.

First, a detailed analysis of her income and expenditure has to be made. Is her income increasing or level? How much disposable income does she have? How much of her capital could she use to pre-fund her LTC?

Next, the potential shortfall needs to be calculated. Assuming she is awarded the lower amount of Attendance Allowance (£38.30 per week) and the lowest level of Nursing Care Allowance (£40 per week), her monthly shortfall is just under £1,130 a month.

She can insure for this in several ways. She should certainly choose a benefit increasing at RPI or more and decide whether to have her regular premiums level or increasing too.

Single premiums vary between insurers from around £23,500 (Age Concern/ Norwich Union) to £27,000 (PPP Lifetime Care) for benefit payable after a two-ADL failure. Alternatively a £10,000 single premium plus around £96 per month gives the same benefit.

Other options include a benefit payable after a three-ADL failure, a limited claim period, choosing a less expensive home or accepting that she will bequeath less to her family. Whilst the costs will doubtless seem expensive, waiting until she qualifies for an immediate care plan will mean paying a great deal more.

Les Schroeter, BUPA

Mrs Roberts would not qualify for full State help as she has assets above the means test upper threshold of £19,500. But she does have a number of options.

The first would be to sell her property at the time care is required, invest the capital and use the interest for care fees or erode the capital to pay care fees. At today's interest rate this would yield insufficient income to pay for her care, and a long stay in a care home could significantly reduce her assets.

Another option would be to release equity from her property to pre-fund for future care if she wants to keep her savings. However, this is an expensive way of funding care.

Alternatively, she could do nothing until care is needed at which time sell her property and fund care through an immediate care (Priority Care) policy. This is a very useful method but is potentially the most expensive, and should therefore only be used where there is no option to pre-fund.

Investing now in a future care policy is the least expensive option and would pay for care whether needed earlier or later in life and would not be susceptible to the uncertainties of the stock market. A lump sum, a regular premium, or a combination of both may fund it. It is essential to have the benefits indexed linked and she has the option to have the premium guaranteed at its starting level.

Dean Critchfield, Norwich Union

Mrs Roberts' situation means that if she needs to go into a home, then she will pay most, possibly all, of the bills herself. She knows this and wants to make sure the costs do not stop her leaving what she wants to whom she wants. A Future Assured plan from Norwich Union can provide the extra income Mrs Roberts needs to achieve that.

It is care home costs that concern Mrs Roberts, so let us start our calculations there. The total annual cost – including nursing care – would be £28,600, less the 'free nursing care' NHS contribution of £3,900, which gives a net yearly cost £24,700.

Assuming Mrs Roberts would be eligible for the lower rate Attendance Allowance of £2,000 a year, this, coupled with an annual income of £11,000 means the net amount needed is £11,700. However, Mrs Roberts would like to allow £2,000 a year for personal spending money, which brings the total required to £13,700 or £1,145 a month.

Mrs Roberts has a reasonable pension, so paying monthly premiums for an income-generating plan may well suit her. The estimated monthly interest she would get from the sale of her house would be £445, leaving £700 a month to be covered by an insurance plan. A plan providing this level of cover would cost £65 a month.

If Mrs Roberts wanted to use the interest on the house value to add to her estate, rather than contributing towards the care costs, the single premium for the extra £445 a month would be just £7,500.

More on uncategorised

Simplyhealth releases employer guide amid unpaid carer challenges

Simplyhealth releases employer guide amid unpaid carer challenges

Four in five carers with health conditions consider giving up their jobs

Jen Frost
clock 14 November 2024 • 3 min read
Queen Elizabeth II dies after 70 years on the throne

Queen Elizabeth II dies after 70 years on the throne

1926-2022

COVER
clock 08 September 2022 • 1 min read
COVER parent company acquired by Arc

COVER parent company acquired by Arc

Backed by Eagle Tree Capital

COVER
clock 06 April 2022 • 1 min read

Highlights

COVER Survey: Advisers damning of protection insurer service levels

COVER Survey: Advisers damning of protection insurer service levels

"It takes longer than ever to get underwriting terms"

John Brazier
clock 12 October 2023 • 5 min read
Online reviews trump price for young people selecting life and health cover

Online reviews trump price for young people selecting life and health cover

According to latest ReMark report

John Brazier
clock 11 October 2023 • 2 min read
ABI members with staff neurodiversity policy nearly doubles

ABI members with staff neurodiversity policy nearly doubles

Women within executive teams have grown to 32%

Jaskeet Briah
clock 10 October 2023 • 3 min read