Calculating the cost of long term care insurance

Calculating the level of long term care insurance (LTCI) benefits requires more than a simple formula. Your client's personal circumstances will dictate the level of care required and the income available to pay for that care.

However, a good starting point is to consider the costs of care at home. After all, this is where most people prefer to receive care. A general package of professional help to provide basic personal care, for example, assistance with washing and dressing, can cost almost £11,000 per year (source: BNA 1999) so it is reasonable to start planning around this figure. If a partner can provide informal care such as cooking and cleaning, then domiciliary care costs can be kept to a minimum. If not, they will have to be included in the cost.

In many cases, only a small part of your client's income could be freed up to pay for care in their own home without drastically affecting their own or their partner's lifestyle. The gap in income needs to be made up with insurance. But care at home can easily escalate beyond the costs indicated above. There has to be a compromise between affordability of insurance and the maximum funds that can be made available for home care before savings must be used.

In some circumstances it may be impossible for your client to receive care at home so a residential setting is more appropriate. This type of care is expensive so ensure you take these higher costs into consideration when calculating LTCI benefits.

Remember that attendance allowance should always be available and your client could release more income towards these costs if they move out of, or sell the family home. Check these additional income sources plus the insurance benefits are still adequate to protect your client's capital taking account of the cost of a nursing home in your local area.

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