Learning Material Sample
Financial protection8. Long Term Care InsuranceLearning outcome 8 Understand the range, structure and application of long term care insurance to meet financial protection needs
Statistics show a trend of increasing longevity, mainly due to advances in medical science and better living conditions and lifestyles. Unfortunately, living longer does not always mean that we will remain in full health.
According to the 2021 census, those aged 6... Shortened demo course. See details at foot of page. ...g term care, the applicable State benefit, the types of long term care policies and the long term care planning process.We have created this presentation to introduce the topic. This will be of most benefit to those learning about this area for the first time: The FCA regulates long term insurance products, including both investment based and pure protection products
The FCA definition of long term care insurance is: “Long-term care insurance is a long term insurance contract: Which provides, would provide at the policyholder’s options, or is sold or held out as providing, benefits that are payable or provided if the policyholder’s health deteriorates to the extent that he cannot live independently withou... Shortened demo course. See details at foot of page. ...s now give an option on their whole of life plans that allows a part of the sum assured to be paid if the life assured meets the definition of requiring care as set out in the policy.The FCA considers LTC provision as high risk because of the complexity of the products, the interaction of personal provision with State benefits and the vulnerability of the typical client. What are the two distinct types of LTCI defined by the FCA? Answer : Purchase course for answer The availability of State benefits for provision of long term care will has a big impact on the advice given to clients. State provision is a complex area as England, Wales, Scotland and Northern Ireland each have their own eligibility criteria and, even within a particular country, the way in which these rules are applied can vary between different local authorities.
It is important to understand the different types of care provided and who is responsible for meeting the costs: Where the primary need for the patient to receive care is health based, the NHS is responsible for the full cost. This is known as NHS continuing care or fully funded care. An individual’s care needs are assessed by the relevant Integrated Care Board (ICB) in England or Health Board in Scotland. This option is not available in Northern Ireland Where the patient has care needs for r... Shortened demo course. See details at foot of page. ... additional £248.70 per week. Attendance Allowance and the care component of Personal Independence Payment / Disability Living Allowance are not paid.Attendance Allowance If an individual who has reached their State pension age funds the costs of their own care they can claim Attendance Allowance: Paid by the Department for work and Pensions (DWP) Tax free and needs based, so non-means tested Payable at two rates A lower rate of £72.65 per week (2024/25) where care is needed only during the day or only at night A higher rate of £108.55 per week (2024/25) where care is needed both during the day and at night Individuals under 65 may qualify for Disability Living Allowance (DLA) or Personal Independence Payment (PIP) instead. Who pays for nursing care provided in nursing homes in Wales? Answer : Purchase course for answer If an individual applies for local authority funding of their care costs the local authority will assess the individual’s ability to pay the costs out of their capital assets and/or income. Local authorities have a duty to:
Assess someone’s care needs following a request Undertake a financial assessment to establish whether the local authority should fully or partially fund the care required Determine maximum fee levels For respite care a local authority is only required to carry out a financial assessment after 6 weeks. The local authority refers to the Care Act 2014 when making the financial assessment. This can be found at www.legislation.gov.uk/ukpga/2014/23/contents . Capital and income are looked at separately, but the amount of capital can reduce the level of local authority funding as we will see next. Personal expense allowance An individual should always be left with a sum of money to cover their personal living expenses, the Personal Expenses Allowance This amount is set by the Government each year For 2024/25, £30.15 per week in England. Amounts differ slightly in the rest of the UK In Wales the allowance is referred to as the Minimum Income Amount (MIA) Capital Those with assets above a specified upper threshold are required to meet their own care costs, from their capital The applicable threshold varies depending on where someone lives, in 2024/25 - In England or Northern Ireland the upper threshold is £23,250 - In Scotland, £35,000 - In Wales (and in respect of residential care), £50,000 ... Shortened demo course. See details at foot of page. ...ernment at six-monthly intervals.Deliberate deprivation rule If an individual transfers an asset out of their own name to someone else this does not automatically mean that the value of the asset would be excluded for the purpose of the financial assessment. Where the local authority can prove that a transfer was done deliberately or intentionally to reduce the individual’s capital that would otherwise be included in the financial assessment, the local authority can treat the individual as having ‘notional capital’ to the value of the asset disposed of. There is no time limit set out in the Care Act 2014 with regards to when transfers are made, so local authorities can look back further than just the period immediately preceding the assessment. A local authority can take action to claim back the cost of care fees plus all the legal costs through the courts, which could end up being very expensive. There are genuine reasons why people may want to give away their property. The Care Act 2014 does not definitively define what should be considered deliberate deprivation; however, a guideline that has been used previously is that it would not be reasonable for a local authority to infer deprivation where ‘the gift was made at a time and in circumstances that the donor was in good health and did not anticipate needing care’. When making a financial assessment of an individual’s eligibility to receive funding towards long term care costs a local authority will base its assessment on the provisions of what Act? Answer : Purchase course for answer There are a variety of different types of care available and the type of care appropriate for each individual will depend on their personal circumstances, the type of assistance they require and their own personal requirements.
Family Care Traditionally, care has been provided by friends and family, usually in the individual’s own home. However, modern lifestyles mean that families live further apart and may be unable or unwilling to provide support. Higher divorce and lower marriage rates mean that more people do not have a spouse or partner to support them. There are still a significant number of unpaid carers in the UK; the 2021 census showed that there are nearly 5 million unpaid carers in England and Wales - around 9% of the total population. Of this, there are 2.5 million people providing care for more than 20 hours per week, with 1.5 million people providing care for more than 50 hours per week. (Source: Office for National Statistics) Professional Care Where family care is not available or not wanted by the individual, or the individual’s care needs exceed those that could be delivered by an untrained person, professional care would be required. Such care may be provided in the individual’s own home or in a care home. Domiciliary Care This is where care is provided in the individual’s own home. The care package is variable and able to deal with short term variations such as recovery from a hospital stay or new needs as they arise. It could cover a variety of needs from nursing care to meals on wheels, depending on the individual’s requirements, and is most suited for those who do not wish to move from their own surroundings. Where a high level of care is required this can be expensive impractical to provide in a home environment. The general trend is towards care at home, it is often an individual’s preferred option. Funding is subject to considerable variation between local authorities. Care in a Care Home The term ‘care home’ covers both residential and nursing homes. Nursing homes are able to provide nursing care whilst residential homes only provide ancillary care. Some care homes will provide both residential and nursing care, meaning that a resident doesn’t have to move location if there care needs develop. Other homes offer specialist services such as the care of people with dementia. Respite Care This is temporary care which can be provided at home or in a care home. It is short term and designed to cover a specific need such as recovery after an operation or to provide a break for the individual’s regular family carer. Respite care can develop into a long term care need. Hospice Care This is designed for people of any age who are terminally ill and approaching the end of their life. It is not designed to provide long term care. Sheltered Housing, extra care housing and close care This is suitable for someone who requires supervision rather than care and who wishes to maintain a degree of independence. This is usually provided by self-contained apartments or bungalows in a complex that is managed by a warden. The warden will remain in close contact with the residents and would be on call for emergencies. Cost of care The cost of care varies greatly and the information in this section should be taken as a guide only. The table below shows the average weekly care home fees in 2024 applying in different regions within the UK. AREA RESIDENTIAL CARE NURSING CARE Frail elderly Dementia Frail elderly Dementia North East £852 £882 £983 £1,008 North West £858 £901 £1,072 £1.110 Yorkshire and the Humber £871 £906 £1,075 £1,116 East Midlands £875 £913 £1,104 £1,135 West Midlands £1,122 £950 £995 £1,148 East of England £953 £1,014 £1,181 £1,214 London £1,128 £1,144 £1,346 £1,416 South East £1,054 £1,123 £1,288 £1,347 South West £1,042 £1,094 £1,265 £1,316 Wales £955 £1,028 £1,189 £1,262 Scotland £1,023 £1,047 £1,197 £1,219 UK £972 £1,021 £1,196 £1,245 Source: Lottie.org Factors which will affect the level of care fees charged include: the area in which the care home is located, the type of care needed, the type of accommodation provided, the quality of the home and any special features offered, e.g. gardens, supported activities, facilities for specific faiths, etc. What type of care is delivered in the patient’s own home? Answer : Purchase course for answer Long term care insurance (LTCI) provides benefits which will assist with the cost of providing for long term care in a structured way. The services that can be provided include:
Domestic help Physical aids Medical services Nursing home care The applicable State benefits will rarely be of an amount that an individual with care needs can rely on them to pay their non-nursing care costs. ... Shortened demo course. See details at foot of page. ...ly there are no new plans of this type available and pre-funded plans can be regarded as legacy contractsEquity release plans A whole of life policy where part of the sum assured is paid early if the life assured meets the definition of care set out in the policy What are the four main ways in which an individual can fund the costs of their long term care? Answer : Purchase course for answer These types of plan are impaired life annuities designed to provide benefits to fund the cost of care where there is an immediate need. An annuity is a product that, in return for payment of a specified capital sum, provides a defined level of income. The key aspects of immediate care plans are:
The client must already have a defined care need and resident in or about to move into a nursing home They will be medically assessed and must also be unable to complete at least one activity of daily living (ADLs) or be suffering from a cognitive impairment such as dementia Typically, ADLs are: - Mobility - Washing - Dressing ... Shortened demo course. See details at foot of page. ...of their care after a period of time. The costs of these policies tend to be lower than immediate needs plans.Can be suitable for those who have enough capital to fund the costs of care for a temporary period but not indefinitely; the individual would self-fund for an initial period and then rely on the deferred care plan. Sheila is in good health and lives alone at home. She is considering whether she should move into a residential home for company as her family do not live close by and finds it difficult to get out and about with friends. Would Shelia be eligible for an immediate needs plan? Answer : Purchase course for answer Pre-funded plans can be both pure protection and investment-linked plans. These plans are structured so the policy is arranged before care is required. There are no providers currently offering this type of plan, some legacy products remain in place.
Pre funded pure protection plans Premiums can be paid as a lump sum or as regular contributions There would generally be no refund of premium in the event of cancellation of an existing policy and cover would usually lapse if premiums are not maintained; it may be possible to make a plan ‘paid-up’ with premiums ceasing and a lower level of benefit provided Existing plans commence benefit payment if the insured meets the provider’s claims criteria; continuing to pay out until care is no longer required Some plans only pay benefits over a limited period Benefi... Shortened demo course. See details at foot of page. ... the capital invested in the bond could be eroded by the cost of LTCI, as could higher than expected premiums due to adverse claims experienceSome of these plans can also be used for IHT mitigation but this should not be the main reason for arranging such a plan Cash care plans These plans pay out a cash sum and/or income for a specified period There is no link between the costs of care and the amount paid out Cover is paid out on specified physical and mental illnesses that are likely to occur with age, and these could include: - Alzheimer’s disease - Motor neuron disease - Parkinson’s disease - Pre-senile dementia They also cover injuries or disease that result in the failure of a defined number of ADLs Which type of plan includes an investment element? Answer : Purchase course for answer A problem faced by many individuals is being asset rich and income poor, they have plenty of capital tied up in their home but their regular income is such that they struggle to makes ‘ends meet’. In these circumstances the principal private residence could be used to raise capital, which could in turn be used to fund the cost of long term care.
When evaluating the suitability of equity release due consideration should be given to the treatment of an individual’s main residence if they have financial dependents that will continue to live there. There are two main types of equity release scheme, lifetime mortgages and home reversion plans, with some variety within these categories. Lifetime mortgages A capital lump sum is released secured on the main residence Interest is normally ‘rolled up’ onto the outstanding debt but it is possible to pay interest if finances allow The loan and any outstanding interest are repaid on the d... Shortened demo course. See details at foot of page. ...ove into permanent residential careSome plans will require a ‘peppercorn’ (a very small) rent Funds can be released in tranches rather than all up front Where the homeowner retains ownership of a portion of the property they will be able to benefit from any future growth in property prices It is unlikely that the homeowner will obtain full value for their property It is only available to older lives, i.e. those over 60 It is difficult and sometimes impossible to reverse the process and it isn’t always possible to transfer the arrangement if the occupier wants to move to a new property The homeowner will probably make a loss if they move out of the property in the early years The market for home reversion is very small, there is a limited number of providers, so the choice of schemes is limited With which type of equity release scheme is it possible to have the capital released in tranches? Answer : Purchase course for answer Clients will have built up savings and investments over their lifetime. Where these exceed the minimum capital and income requirements set down in the Care Act 2014 the client will be required to partially or fully fund the costs of long term care. Careful planning is an important part of this process.
Firstly, draw up a schedule of all the client's assets and liabilities including current values, asset types and any income produced or the potential to produce income Take account of the taxation implications of any sale of assets or financial penalties that may be imposed Establish any State benefits that may be claimed Establish the projected cost and timescale for providing the cost of care, making assumptions about future increases Also consider the type of care to be provided and any future care needs Account should be taken of the income and capital needs of any financial dependents Once the income and capital requirements have been established, the existing assets should be reviewed as to their continued suitability: Illiquid capital assets such as property could be sold to release liquid capital The main residence could be used to release capital by using equity release Alternat... Shortened demo course. See details at foot of page. ...iatical company would require evidence of the policy and of the terminal illness.The handling of medical evidence is a sensitive area especially where the terminally ill person does not have full mental capacity. The loss of death benefits to the family may also be an issue. Pensions A registered pension scheme is a tax-efficient long term savings arrangement designed to provide capital / income at a future date when an individual no longer wishes to work. The rules allow pension funds to be accessed in a flexible manner, releasing tranches of capital and / or income that could be used to fund care costs. Issues to consider for LTC planning The client’s income The client’s capital The main residence A history of any gifts State benefits Existing insurances Costs in care homes in the desired area Consideration of reducing costs by moving to a different area The client’s current medical condition and the length of time care would be required for How long the client is likely to live for The cost of recommended care and affordability What tax could apply where capital assets are sold in order to finance care costs? Answer : Purchase course for answer The selection of the right care package will depend on various issues:
The health and care needs of the individual The services that are available and the costs The budget that is available The personal wishes of the individual requiring care The medical condition and how care needs may change in the future Care at home The decision regarding the type of care required at home is largely the province of the individual’s GP. The relevant local authority or a specialist provider can carry out a care assessment in respect of domiciliary care. If a need for care... Shortened demo course. See details at foot of page. ...dviceOngoing reviews and advice Family involvement Families may be involved in LTC planning as they may be: Providing care and support to the person needing care Involved in choosing the care package Providing financial assistance The legal representatives of the person needing care This can be a very tricky area as the person needing care may not want their family knowing about their health or financial matters. It is usually a good idea to include family members in the planning process to provide a better all-round solution and avoid problems in the future. Power of attorney allows an individual to appoint someone to make decisions on their behalf should they no longer wish to do so or in anticipation of a point in time when they lose capacity to do so.
An individual may lack mental capacity if they suffer an injury or from a disorder or condition that affects how their mind works. The impact may be in respect of all decisions, all of time or may mean that it takes them a long time to arrive at a decision and require additional support to do so. Enduring powers of attorney An enduring power of attorney (EPA) allows the attorney to make decisions about the donor’s finances and property. If the attorney becomes aware the donor is (or is becoming) mentally incapable, they need to register the enduring power of attorney with the Court of Protection. As soon as the EPA has been registered the attorney can continue to act despite the donor’s mental incapacity. Registration with the Court of Protection must be made by the attorney as soon as possible because any decisions the attorney makes once the donor has become mentally incapable and before registration with the Court of Protection are invalid. A donor is unable to revoke an EPA that is registered with the Court of Protection without the court’s permission although it will automatically be revoked on bankruptcy. Under the Enduring Powers of Attorney Act 1985 an atto... Shortened demo course. See details at foot of page. ...continuing and welfare are the two relevant types of power of attorney and act in the same way as the two versions of LPA.Powers of attorney interaction Since 1 October 2007 it is no longer possible to take out a new EPA. However, an existing LPA (whether registered or not) can remain in place. If the donor becomes mentally incapacitated after 1 October 2007 it is still possible to register the EPA. It is not possible to change an EPA to a lasting power of attorney at any time. If the donor of an enduring power of attorney is still mentally capable they may decide to revoke it at any time. It is possible to establish an LPA to run alongside an existing LPA; perhaps because an individual has an EPA in place in respect of their financial affairs but also wish to provide for decision making in respect of their health and welfare. If no EPA / LPA exists If an individual has not set up an EPA or LPA and loses mental capacity a relative may seek to be able to act on the individual’s behalf by applying for a Deputyship Order from the Court of Protection. When compared to powers under an EPA / LPA, a Deputy has more limited powers and the Deputyship Order will detail those powers. The process of arranging a Deputyship Order can take several months and there are costs involved. What do the two types of Lasting Power of Attorney cover? Answer : Purchase course for answer The Care Act 2014 legislated for significant changes to long-term care in England, following on from the work of the Dilnot Commission which reported the findings of its review the funding system for care and support in England in July 2011.
The review set out recommendations as to how the Government could dramatically impro... Shortened demo course. See details at foot of page. ...owance and Minimum Income Guarantee for those paying for care in their home increased with inflationIn November 2022 the Government announced that the reforms would be delayed until October 2025. A general election took place in July 2024 and the Labour Government has confirmed that the planned changes will now not proceed. This revision test (opens in a new... Shortened demo course. See details at foot of page. ... test will be added to your CPD certificate. |
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