Later life care: a matter for all to consider

A key part of the new measures will be a new cap on the costs of care for an individual, planned from 2020, and designed to limit the financial burden placed on an individual. But this cap of £72,000 will apply only to pure care costs, not the costs of accommodation and food.

In reality the limited scope of what the cap applies to, and the high bar means that 92% of men aged 85 going into residential care will never reach the cap according to the Institute and Faculty of Actuaries. 

There are also deferred payment schemes, operated by local authorities, which enables people to use the value of their home to pay for care, without the need to sell the property in their lifetime. But again there are restrictions, and is available only if clients have a small amount of savings and investments and their home is not occupied by a partner or dependent relative.

Insurance at the point of need

In terms of insurance, products at the point of need are equity release or immediate needs annuities. However, these require specific advice qualifications, and they do not help people plan for their future care needs. However, it is worth considering what they do.

Equity release provides a way for people to unlock some of the equity tied up in their home so that it can be used to cover care costs, but could mean clients cannot pass on the family home to dependents.

An immediate needs annuity policy can be bought when someone is going into a residential care or a nursing care home, and the annuity is paid directly to the care provider for the life of the individual.

There are also purchased life annuities: an alternative where the income is paid to the individual. This is more suitable for people that are in better health and living in their own homes. These can indemnify clients against future care costs, but they do require significant capital, which clients may not have available. 

Sell or rent your home?

Another option is to sell your home to release capital or to rent it out when you move into care. Selling the family home and moving to a care home can be a lengthy process. It is also stressful at a time when an individual's health may have quickly deteriorated. This process could leave people without the ability to pay for their care costs in the interim, and could add to an already stressful period in their life.

Renting is another possibility, but the income generated may be intermittent due to void periods. There are also legal and maintenance responsibilities that landlords will have to perform, which may be too much for someone receiving full-time care.

Savings, investments and pensions

People can accumulate savings and investments during their working life, which could be used to help pay for their care costs. This approach relies on investments growing sufficiently over the long term, and there remains the risk that there is insufficient funds to pay all care costs in later life. It also remains that most people do not currently save enough for short term objectives or pensions, let alone for the cost of care.

Pensions are another route, and following Pensions Freedoms it means more people can now access the pension pots to help pay for additional care costs in later life.

For those who plan to draw on their savings, investments or pensions, they may also still wish to leave a gift to dependents. So they may need to consider whole of life cover to protect the value of their estate.

Funding and providing care is set to be one of the biggest challenges we face as a society over the coming years. Therefore, it is important that later life care is not swept under the carpet.

That your clients understand their options, and what they are potentially putting at risk by not having any protection in place. Ultimately, ensuring your clients have more control will be good for them, and opens up new opportunities for you.

Justin Taurog is managing director of VitalityLife

Further reading

Caring for an ageing population

Inheritance tax: The stealthiest of them all?