How to pay for long-term care is increasingly on our minds. The average nursing home costs a mammoth £36,000 a year. We are an ageing population with more and more people in need of care so it’s crucial you find out what help is available and how you can protect yourself from these costs.
We are all living a lot longer in the West which is good news, for the most part. What it does mean for many, though, is that a fair amount of this extra time is likely to be spent in some kind of care home – whether a basic residential home for the elderly or a full-blown nursing home with constant or partial medical care.
In England and Wales you’re expected to pay all or part of your fees for care (either at your home or in a care environment), depending on your income and capital. Your local council will do a financial assessment before you move into a care home. Factors like interest on your property, savings, investments, pensions and benefits will all affect this assessment, or means testing.
You capital is the phrase used to describe the total amount of your savings, any property you own and any shares you might have.
It does NOT include your pension and benefits you might be getting.
|Amount of your capital
||How it will be treated
|Over £23,250||You must pay full fees (self-funding)|
|Between £14,250 and £23,250||The local authority will assume that this generates an income and this will be taken into account for your care home fee contributions.|
|Less than £14,250||This will be ignored and won’t be included in the means test|
Will I lose my home?
If your home is your only asset it will usually have to be sold to pay the bills unless it is required as part of your on-going care plan.
The good news is that there are things that can be done to avoid your losing your house provided that you don’t already know that you need nursing care. This won’t work if you haven’t already been diagnosed with a degenerative illness that you will need care for later on. If you get rid of your assets after you’ve been told that you are ill then you will be treated by the authorities as having made a ‘deprivation’ and your family or your estate will have to pay.
You can raise the money with an equity release plan, with what’s left of the value of the house going to loved ones. Some advisers recommend putting the house in trust for the benefit of beneficiaries before the problem arises. However, this may not be watertight.
You can also get insurance to pay for nursing care but policies can be expensive and it may be too late for you to start one now. It’s a good idea to get independent financial advice about your specific situation.
There are also other things to consider, which will affect your claim:
- The value of your property will not be included in means testing if the care is only temporary – for example during rehabilitation from surgery – or if a spouse or partner, a relative aged 60 or over or disabled will continue to live in the property.
- It is essential to bear in mind that each case will be different and assessed accordingly. The Department of Health has released the CRA (Charging for Residential Accommodation) guide for information.
- N.B Anyone who is self-funding their care can claim Attendance Allowance which is not means tested and is worth up to £83.10 per week. If you receive care in a nursing home you can claim for the registered nursing care contribution, paid at £156.25 a week in the UK.
Being cared for at home
Given the choice, most people would prefer to be cared for at home for as long as possible. Care is provided by the social services department or you can go direct to private agencies, for example The Wealth Care Partnership. Whichever one you go to you can have some help from the Government but only if you have practically no savings or assets.
For those that don’t want leave familiar surroundings, they can receive live-in care. where a carer lives in the home with the person in care. This not only ensures that appropriate health checks are constantly taken, but that the person in care has a constant companion and adviser.
Being cared for in a residential or nursing home
Here, the patient lives full-time in a facility specifically designed for the ill or elderly, and if the family and friends are unable or unwilling to look after them. However it also offers the chance to socialise, which would have been difficult if the patient had been at home – especially with impaired mobility.
Sheltered housing / Care villages
This is generally grouped housing such as a block or flats, which are run and funded by the local council.
Long term care insurance – a different entity to health insurance – is one option for families concerned about the cost of care. This offers people peace of mind that they can ensure that they will have adequate money to cover their costs if they become ill ‘long-term’ and require assistance.
Before you take out long-term care insurance, it’s vital to understand exactly what this type of cover is all about
- This is not to protect against the cost of short-term illnesses – this is to cover the cost of care arising from permanent conditions such as arthritis or dementia.
- The term ‘care’ is used to cover a variety of services both in your own home and at a nursing home This assistance may not necessarily be specialist health care; it may simply be aid with daily living activities, such as dressing, washing an eating.
When do I take out cover?
You can buy this insurance in advance, whilst you are still fit, healthy and working to insure against the possibility that you need care, which is known as Pre-funded LTCI, or as and when you actually need care, known as Immediate care LTCI.
- If you take out an immediate care LTCI, which is simply an impaired life annuity, you pay a single lump sum when you are about to go into a nursing home so that you are covered for care immediately. Any future payments towards the cost are guaranteed for as long as you need.
- For pre-funded policies, you take out cover at any age and because this type of insurance is underwritten, how healthy you are will affect your premiums. Cover will start when you are no longer able to perform an agreed number of what’s known as Activities of Daily Living (ADLs) such as bathing, feeding yourself and dressing – the exact number and definitions of these will vary from one insurer to the next – and the onset of certain mental conditions such as dementia.
Two of the main providers are Axa PPP and Partnership.
What is not covered?
Make sure you know which conditions are not covered by long term care insurance. Any limitations to cover will be detailed in your policy but as a general rule these conditions are not covered:
- Certain mental disorders including depression and schizophrenia
- Alcohol and drug abuse
- Self-inflicted injuries and attempted suicide
- HIV/ AIDS
- War risks
How much will it cost?
Your premiums will be based primarily on the amount of money you want to be paid if you need to claim, as well as your age, sex and health. If you take out cover at an early age, when you are healthy, you can expect lower premiums.
Other factors impacting on cost are:
- The number of ADLs you need before you can make a claim
- You must also decide whether you want the policy to provide for care only in your own home, or in a residential/nursing care, or both
- You can opt for guaranteed premiums that will not increase over time in exchange for a higher premium
- There is a waiting period typically of 13 weeks before the policy kicks in so you must be prepared to cover costs during this period by yourself. You may have the option of increasing the waiting period for a smaller premium
- You can have your benefits index-linked so that they are protected against inflation. This will mean that each year your premium and level of cover are adjusted according to the retail prices index (RPI)
- Consider a Deferred Care Plan, which will pay out after a number of years depending on the policy. The longer the term of the policy, the cheaper the deal – provided you’re still around to cash in!
If you have property, you can sell the property and use the proceeds to fund care or you might be able to use the property to bring in income. Here are the options:
The Deferred Payment Scheme
This keeps property in your estate – meaning you could rent it out and make more income. It’s also interest free and, if houses prices increase, you will be set to make money in the long run. However, you’ll need the agreement of the local council and it may be more hassle than it’s worth if you have tenants and constantly need to keep the building well-maintained and occupied.
If this is even allowed – it may not be if the owner is in care – it will make capital readily available. It also means that you will make extra money if the property price increases.
Assets into Cash
In other words, you sell assets that you have (car, home, caravan, paintings etc) and keep the cash in a savings account to live off. This is a low-risk option but it also gives a low return. Money becomes more accessible but also more susceptible to depreciation and it probably won’t keep in line with inflation.
If you know what you’re doing, you could get a much better return by investing your money into share-based products that will give you good dividends.
As with most matters, each investment should be assessed individually. The returns may be less known and harder to judge than cashing in on your assets, and there is a risk attached. However it could quite easily provide more income in the long run if you invest appropriately. See our Investing section for more ideas.
In all cases, it is important to remember that whatever worked (or didn’t) for someone you know, it may not work or even be relevant for you. Get your case assessed on its individual merits. Some of the people below will be able to help.