Alternatives to long-term care insurance and how to pay for care

Telegraph

6 hours ago

The spiralling cost of long-term care is a concern for many in Britain's ageing population, especially since it can be difficult to get state support.
Long-term care insurance used to offer individuals protection to help cover these costs, but these policies no longer exist.
However, there are alternatives. Here, Telegraph Money explains what your options are to help meet care costs, and how much you might expect to pay.
What is long-term care insurance?
Why is it no longer available?
Alternatives to long-term care insurance
Cost of long-term care in the UK
Can the Government fund long-term care?
What is long-term care insurance?
Long-term care insurance is a legacy product that provides protection for later in life care costs.
The policies are no longer available on the market to buy, although customers may still be receiving payouts from existing plans.
Policies provided holders with a regular income to pay fees for a nursing home or for home care, according to the Financial Ombudsman Service.
This could include round-the-clock care in your home or for particular services, such as help with bathing and dressing.
Why is it no longer available?
Part of the reason long-term care insurance came to an end was the escalating costs of care and increasing life expectancy. Combined, this made it unaffordable for policy holders.
As there is no cap on the cost of care in the UK, it became too hard to develop a workable product.
Under Boris Johnson, the Conservatives had planned to introduce a £86,000 cap on the amount individuals would have to pay towards their own care costs, after which the state stepped in.
However, since coming to power last year Labour has announced that it will not go ahead with the previous government's plan.
As a result, many individuals will have to continue contributing high amounts to their care costs. There are around 130,000 care home residents who self-fund their care, according to the Office for National Statistics.
Alternatives to long-term care insurance
While long-term care insurance is no longer offered in the UK, there are other options that help meet individual care needs.
However, they are not comprehensive and so you need to make sure you know what is and isn't covered and how that corresponds to your needs.
It is also worth checking that you don't have an old long-term care insurance policy or existing coverage through long-standing life insurance.
Care fee annuity
A care fee annuity, also called an immediate needs annuity, is designed to bridge the gap between your income and the cost of your care for the long term.
An immediate care annuity works in a similar way to a normal annuity, where you receive a guaranteed income – but the money goes directly to your care provider rather than to you.
As the payment doesn't come to you it isn't classed as income, and therefore isn't taxable. It helps avoid a situation where you are left without the funds necessary to pay for care.
However, this kind of product requires you to provide a named care provider in order to access the money, which means you must either already be receiving care, or you're just about to start receiving care and know which provider you'll be using.
To buy an annuity of this kind it is best to find a financial planner specialising in long-term care. You may have to complete a medical assessment for a prospective provider so they can estimate your likely needs.
Your annuity rate – the amount of money you are given – will depend on a variety of factors, including your age and medical history. It is also worth looking at an option to protect against fee rises by increasing your annuity payment annually by a fixed percentage or inflation.
Sarah Pennells, consumer finance specialist at Royal London, said: ' Making decisions around care, for yourself or a parent, are never easy, but thinking about how you would pay care fees, ahead of any crisis, is a sensible approach to take.
'One of the options to consider is whether an 'immediate needs annuity' is right for you. There aren't many insurers who offer this product, but it can be bought at the point that you need care.
'In exchange for you paying a lump sum to an insurance company, it could pay your care costs for as long as you live.
'Although not cheap, as they can cost tens or even hundreds of thousands of pounds, these products can be a big help if you have capital or savings you want to preserve.
'However, depending on how quickly care home fees rise, they are not guaranteed to cover care home fees in full for as long as you need them.'
Critical illness cover
Critical illness cover is a form of life insurance that will pay out a lump sum if you are diagnosed with an illness covered by your policy.
The policy holder can then use that money for any costs, such as necessary long-term care. However, you will need to ensure that your illness is covered by the policy to get a payout, otherwise you could be left with costs that aren't covered.
Conditions that are likely to be covered include strokes, Alzheimer's and cancer. Critical illness insurance doesn't just cover care later in life, but can also be taken out at a younger age to protect against illness.
Some providers also offer policies designed to provide cover for children.
However, there may be a maximum age that you are still eligible to take out the policy. For Aviva, for example, it is 64.
Prices for critical illness cover vary based on factors such as your age, health and level of coverage, but premiums can be as cheap as £12 a month with an average of £29 a month, according to comparison site MoneySupermarket.