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With more
and more people living longer, it is vital to plan
for the financial implications of providing for long-term
care. Government statistics show that in1991 there
were 2.3 million people in the UK aged over 80. It
is estimated that by 2031 this number will have surged
ahead to 4.4 million. In fact, men have a 1 in 6 chance
and women 1 in 4 chance of requiring long-term elderly
care in their later years. (Source:
Swiss Re life and health 1998)
Facing
up to the costs
Providing for the costs of this type of care is very
expensive and most people would be unlikely to receive
any help from their local authority, whether this
was for residential home care or even home help. The
crucial figure is £16,000 worth of assets (including
the value of your home). You would be expected to
pay the full costs if you had assets above this figure.
Between £10,000 and £16,000 of assets, some assistance
would be available, and below £10,000, the local authority
would pay the care costs associated with any shortfall.
According
to the British Nursing Association, it costs an average
of £13,840 a year to provide someone with four hours
of professional care per day at home. Nursing home
fees cost in the region of £20,000 a year, and can
exceed this. When you consider that the average time
spent in a nursing home is between 2.5 and 3 years
and in a residential home between 4.5 and 5.5 years
(Source: Laing and Buissan 1998), it would
not be very long before your savings were seriously
depleted.
The care
options
During 1998, around 40,000 homes had to be sold to
pay for nursing care for elderly people, who might
otherwise have left their property to their children
(Source: Laing and Buissan 1999). So how can
you plan to avoid this happening to you? One way is
to take action immediately through pre-funded insurance,
making a regular contribution now so that, in the
event of requiring funds in the future, you have made
sufficient provision. However, if you have 'immediate
needs', whereby you have had to sell a property to
pay for care, there is an alternative solution.
Long-term
care insurance
Long-term care insurance policies can be taken out
before care is required, and will fund care fees due
in the future. You make monthly contributions depending
on your age and how much you consider the level of
future fees is likely to be. We can assist you to
make an informed decision about the amounts required.
As with any
protection, the earlier you start, the cheaper the
contributions are. Certainly, if you are in your 50s
or 60s, you should seriously consider this option.
Starting at this age, you are giving yourself in the
region of 20 years or more before you might need this
type of care. Claims on these types of policies are
usually made when plan holders are unable to perform
certain activities of daily living, typically washing,
dressing and feeding themselves.
Long-term
care insurance bonds
These bonds are a combination of long-term care insurance
and investment. You choose the level of fees you think
you will require and then pay a one-off lump sum.
Rather than buying insurance, the money is invested
in a fund. When you eventually need care, some of
the fund is cashed in each month to pay your care
fees. In the event that the fund has been cashed in
and you still require care fees, insurance is then
used to pay all the subsequent fees and is paid for
by making a deduction from your fund. If you don't
require care, or die prior to the fund being exhausted,
the value of the fund at this point is returned to
your family.
Creating
your own bonds
Your own investments could be used to create your
own long-term care bonds. Once you have sufficient
capital, you could purchase income-generating bonds
or annuities when you need to meet the costs of care.
As there would be no insurance element, no premiums
or deductions would be taken from your capital, which
could then be passed to your family if you don't spend
it all on care. You could also select bonds that would
ratchet up your investments and keep them locked in
- especially as you approach retirement, when you
can carefully allocate your investments.
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We have
covered some of the main ways in which you can
make provision for your long-term care. However,
you will require a detailed review of your own
specific situation and needs. The Royal Commission
report on long-term care was issued on Monday
1 March 1999. The proposals if implemented may
affect any long-term care planning undertaken
now. If you want to ensure that you have planned
successfully prior to such an event occurring,
please contact
us to arrange a meeting, or use or
online
advice service, so that we can look
at all the options available to you.
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