Nursing a financial headache
Financial Times, February 16, 2001
Insurance policies offer several ways of meeting high cost, says Lucy
Warwick-Ching.
New rules announced this week mean that elderly people moving into
residential care will have longer to decide whether to sell their home in
order to pay the fees. Even so, financial advisers warn that people should
be doing more to protect themselves and their assets before they need
care.
The cost of private nursing homes can be high, around £18,000 a year
on average. Paying these fees can quickly deplete a lifetime's savings,
and many people end up selling their home.
Last June, the Royal Commission into long-term care said the government
should give the elderly 12 weeks after being taken into care before the
value of their home is included in the means test that decides who
qualifies for local authority assistance. Ministers announced this week
that this will be the case from April 9.
"This will give people more time to plan their finances, work out
what to do with their home, and will prevent all too-hasty sales of
people's houses," says Chris Elliot, technical manager of Age Concern
Financial Partnerships.
But he points out that if you sell your home within the 12-week period
it will be included in any assessment of your wealth as soon as you become
a permanent care-home resident. "People will be better off if they
don't sell their home until after the 12 week period is up."
Your house will also be left out of the equation if your partner, a
relative over 60, or a dependent child under 16 still lives there.
However, you can't get around the rule by giving away your money or
your property to your children, or anyone else. Your local authority could
regard this as your having deliberately deprived yourself of your assets.
In this case, you will be assessed as if you still owned them.
"Unfortunately, anyone who is already a permanent resident in a
care home on April 9 won't benefit from the new rules, and will continue
to have their home included in means test from day one," says Elliot.
The state will only fund nursing or residential home costs for people
of very modest means. Anybody with savings and assets of more than £16,000,
including their home, must foot the bill. Only when you have less than £10,000
will your local authority meet the all the costs.
Long-term care insurance may be the best answer to your funding
dilemma. Elliot says that because many insurance policies kick in three
months after the policyholder has gone into residential care, the new
rules could save a policyholder from selling their home.
There are two main types of long-term care insurance. The first is
called "pre-funded" insurance. You pay either a lump sum or
regular premium into the policy, and make a claim if you need nursing or
residential care.
Graham Fidoe, a financial adviser and chairman of IFACare - a group of
financial advisers specialising in long-term care, says: "This is the
cheapest way of funding care, but the drawback is that if you never claim
you lose all the money you've put into the insurance."
The typical cost for a man of 65 wanting £1,000 a month cover is
around £60 a month, or £9,000 for a lump-sum premium. A woman of 65
would pay around £90 a month, or £13,000. Costs are lower for younger
ages, and higher for older people. Women pay more than men because, on
average, they live longer.
Some pre-funded policies link the insurance with an investment, so
there is money left in the pot if you remain hale and hearty to the end.
"You can buy an investment bond where, in a sense, the interest buys
the insurance. So if the bond grows at a current rate then your insurance
will be covered," says Fidoe. The second method is through
"immediate care" cover. You pay a lump sum only after the need
for care arises, and receive an income to help meet costs. Immediate care
cover is more expensive - you could pay up to £30,000 for the cover
outlined above. But at least this leaves the remainder of your assets
safe. Long-term care cover is offered by several insurance companies,
including BUPA, CGU, Countrywide Assured, Eagle Star, Norwich Union,
Permanent Insurance, PPP healthcare and Scottish Provident. Age Concern
Financial Partnerships, an offshoot of charity Age Concern, works in
association with CGU Life. The final method of funding recommended by
financial advisers is through an equity-release scheme. This allows
homeowners to unlock capital tied up in their property to spend on care
costs or to finance insurance. Norwich Union allows homeowners to borrow a
percentage of the value of their property at a fixed interest rate. The
cash can be used to finance care-home fees, pay for immediate care cover
or be put to other uses. The interest rolls up and is paid from the estate
when the property is sold, or when the owner dies. Equity-release schemes
got a bad name in the 1980s. However, the latest schemes have a "no
negative equity" guarantee. This means the lenders will accept the
sale price of the property as payment of the total amount owed, even if
the debt exceeds that amount. Hinton & Wild, specialist equity-release
advisers favours this scheme. Consultant Tim Russell says: "Equity
release is a great way of unlocking the capital in your home without
selling it. The guarantees now built into these products make them safe
for borrowers."
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