Long Term Care Options
Are you concerned about how you are going to pay for your nursing home fees or those of an elderly relative?
If you do not qualify for financial help from the local authority, you will normally have to pay towards the cost of care out of your own income and savings (potentially even having to sell your own home to meet the costs).
There are many different ways to help you pay for long-term care.
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Long-term care insurance
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Through a lump sum purchase to pay for care immediately ("immediate need" plans).
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Through regular premiums, or a lump sum, in case you need to pay for future care ("pre-funded" policies).
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Through exchanging some of the value of your house to pay for long-term care premiums (“equity release” plans).
Immediate Need Plans (annuities)
These type of policies are impaired life annuities - sometimes called care fees annuities and are designed to help fund care for those who need it immediately. If you are in poor health and already need care, or you are about to go into a nursing home, it is possible to pay a single premium to buy a policy which will begin paying for your care immediately. These policies will continue to pay out for as long as the person needs the care - no time limit.
Pre-funded Policies
There are two main types of "pre-funded" policies.
First, there is traditional insurance -paying a single or regular premium into a "common pool" to insure against a possible future event. You can take out a policy at any age to cover the cost of long-term care in the future. The insurance is usually underwritten, which means that your state of health will be taken into account. These policies allow you to choose the type of care you wish to receive and can cater for deteriorating health. For example, you might start by receiving care in your home, but in time residential care may become the only practical option.
As with other types of traditional insurance that are not investments, there is generally no refund of premium in the event of cancellation and future claims will not normally be possible if the policy has been cancelled. However, future claims can be made if the chosen long-term care policy permits you to stop paying premiums after a set period and retain limited cover. In this case the insurer will make a related reduction in the cover provided.
An alternative to traditional pre-funded plan is a combination single premium investment bond and regular premium long-term care policy. These type of plans ensure that should the need for long-term care arise there will be some benefits available to the policyholder and after death, his/her heirs. The premium needed to pay for the long-term care insurance is withdrawn by the company each month from the value of the bond. If care is never needed the value of the bond is returned to your estate. This residual value will be the investment plus any growth minus the insurance premiums. If a claim is made on the insurance policy any remaining balance of the residual value of the bond can be returned to you at any subsequent time.
While these bonds can be cashed in at any time, you should be clear about the impact this would have on your long-term care insurance. In some cases it may be possible to continue paying premiums, but this is not always the case.
Equity Release Plans - click for more info
Equity release is a way of exchanging some of the equity in a house in order to pay for long term care premiums. It is therefore generally most appropriate for individuals without a mortgage who want to raise capital on the equity in their home without selling it. These types of products can be helpful if you have a high level of assets but have a low level of income; the home can therefore be used to finance long-term care insurance.
Source - ABI Guide to Long Term Care Insurance
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