Mr Spencer, 65, and Mrs Spencer, 63, are interested in buying long term care (LTC) insurance. They are both retired and in good health, but want to make sure they can still leave an inheritance to their children if either of them should need long term care. Their preferred local nursing home currently costs £600 a week. Their property has been valued at £250,000 and they have joint savings of £42,000. The joint net annual income of their pensions is £25,000. What are their LTC options?
When planning for Mr and Mrs Spencer's future care costs, we would examine four different scenarios, considering how much income and expenditure would exist in each.
Scenarios one and two look at either Mr or Mrs Spencer pre-deceasing the other and the remaining partner's financial position if he/she then needed care (paying attention to any widow's pensions). Scenario three looks at one of them going into care while the other remains at home, paying household running costs, while scenario four looks at them both going into care simultaneously.
Whichever of these scenarios predicts the largest financial 'shortfall' would be the one we recommend they insure for. If they are only wishing to plan for nursing care being needed (not domiciliary or residential care) we should allow for the higher weekly rate of Attendance Allowance (£57.30) and at least the lowest band of weekly Registered Nursing Care Contribution (£40) in our shortfall calculations.
If we consider the fourth scenario, with care costs of £600 per week each, there would be a shortfall of £13,646 per annum each, assuming that their joint income is split 50/50 and continues when one pre-deceases the other.
A pre-funded insurance policy could provide this income (index-linked) at a one-off cost of £9,741 (£67 monthly) for Mr Spencer and £17,396 (£91 monthly) for Mrs Spencer, based on Norwich Union's three activities of daily living (ADL) failure contract.
This would mean that their property is entirely ring-fenced from future care costs, while still leaving them with accessible savings even if they funded both policies on a single-premium basis.
Graham Duffy, Pension Annuity Friendly Society
Investing £150 a month each into the PAFS Flexible Care Account would help Mr and Mrs Spencer protect their capital without restricting the amount they spend on their current lifestyle. These premiums are fixed and are not increasing each year. The Spencers allocate more of their premiums to the LTC insurance policy with a maturity value and two opportunities to claim for care. A smaller amount is invested for capital growth and ear-marked for spending on care equipment. This would give the couple protection against capital erosion, peace of mind and the chance to increase the value of their estate if they do not claim.
The nursing care insurance will pay out a lump sum if Mr and Mrs Spencer need to be attended by a registered nurse in their own home or if they need to go into a nursing home.
Their investment funds, based on 6% growth per annum, will provide around £20,000 to cover incidental items they may need, such as domestic assistance, stairlifts or walk-in baths. The policy will also pay around £5,000 for a nurse to attend them in their home following a fall or illness. And finally, they will receive around £50,000 when they require nursing-home care. At this point they will be referred back to their IFA to determine the best way to pay for that care. Depending on their situation, they may decide to self-fund and leave the money to their children, or they may buy an immediate-needs annuity. Of course, if they remain healthy, they will receive the £50,000 at age 99.
Shelley Robertson, Skandia Protect
Mr and Mrs Spencer have a limited income and savings. They wish to provide for potential LTC costs and leave an inheritance for their children.
They have a potential Inheritance Tax (IHT) liability, as their assets exceed the current £255,000 threshold.
They could use separate policies in a Skandia Protect plan to provide LTC benefits each. This following figures show approximate costs for how they could set up a plan, depending on their preference to spend income, or capital, or both.
A single premium for £1,250 benefit each a month would cost Mr Spencer £9,400 and Mrs Spencer £14,800 (total premium £24,000). A regular monthly premium for the same benefit would cost Mr Spencer £70 and Mrs Spencer £90 (total monthly premium £160 a month). A single premium for £500 benefit each a month would cost Mr Spencer £4,200 and Mrs Spencer £6,500 (total premium £10,700). However, they could add this to an additional regular monthly premium for £750 benefit each a month, which would cost Mr Spencer £44 a month and Mrs Spencer £56 a month (total monthly premium £100). All premiums are based on failing three ADLs and with a 12-month deferred period.
They could also include a guaranteed whole life policy in trust to cover their potential IHT liability. For example, cover of £50,000 would cost them about £80 a month on a second-death basis. This would allow them to leave their children some money, no matter what happens to their health.
