Long-Term Care Insurance
LONG-TERM CARE: WHAT, WHEN AND HOW?
This factsheet provides information on the different types of long-term care that an individual may experience. It then explores how much such care is likely to cost, how such costs may be met, and explains the role that long-term care insurance can play as a planned way of meeting all or some of the expense.
Long-Term Care Insurance: Frequently Asked Questions
- What is long-term care?
- What is the likelihood of my needing care?
- Does long-term care just mean care in a nursing home?
- How much care will be required at home?
- Will my spouse/family be able to look after me?
- Will the state help me meet the costs of care at home?
- How much does care at home cost?
- What happens when it is too difficult to stay at home?
- Do I have a choice of accommodation?
- How much does a nursing home cost?
- How long is the average stay in a nursing home?
- Will the state pay?
- Will I have to sell my home?
OTHER FINANCIAL ARRANGEMENTS FOR LONG-TERM CARE: Frequently Asked Questions
- What are the alternatives?
- Isn’t long-term care insurance expensive?
- At what age should I take out long-term care insurance?
- Are long-term care policies just for the elderly?
- Does insurance start on the day I buy it?
- How would I qualify for help under a long-term care policy?
- To whom should I talk about long-term care insurance?
- Some questions you should ask before taking out a long-term care plan
What is long-term care?
There is no one simple definition of ‘care’. Care can range from help in your own home with domestic tasks such as shopping, cleaning or help with managing bills and other paperwork, to providing personal and intimate care such as washing, dressing or feeding either in your home or in a residential or nursing home.
What is the likelihood of my needing care?
Because the definition of ‘care’ is so broad, there are no exact figures available. However, there are nine million people over the age of 65, one in seven of whom receive a social security benefit to help with the extra costs of care.
One in five people over 70 receive care in their own home, one fifth of whom require continuous assistance throughout the day.
There are an estimated half a million adults in residential care or nursing homes in the UK.
Does long-term care just mean care in a nursing home?
No. More people receive care in their own homes than in residential care or nursing homes.
How much care will be required at home?
The exact amount of care will vary from person to person.
However, at present, 50% of those providing care to someone at home on an informal basis do so for more than 10 hours per week. One in seven informal carers look after someone for more than 50 hours per week.
Local authorities provide assistance to 470,000 households.
Will my spouse/family be able to look after me?
There is nothing to stop members of your family from doing so if they are able and willing to do so.
Information from the Department of Social Security (DSS) suggests that, at the moment, one in ten adults provide care to a sick or disabled person living at home. Almost two in three of these informal carers are looking after an elderly parent or other relative.
Remember, though, that caring for a sick or disabled person can be a physically and emotionally demanding job. Many carers are themselves elderly – one in seven carers are looking after their spouse.
In addition, if the care is provided over a long period, the chances are that your carer will need a break to recharge their batteries just like anybody else.
At such times, you may qualify for help from your local authority, but there may be a charge, depending on your financial circumstances. Otherwise, you may have to go into hospital, or a residential home, or rely on a charity to help you, or pay for someone to come in to look after you.
A long-term care insurance policy can help in both cases. First, policies are available to meet the cost of help in the home if you need it. Second, many policies will cover the cost of either engaging someone with the appropriate training to look after you while your carer is away or for a temporary place in a nursing/residential home.
Will the state help me meet the costs of care at home?
State assistance for the extra costs associated with care in the home is complex, and may vary depending on where you live. Key sources of help are described below; however, you should contact you local Benefits Agency Office, or the Social Services Department of your local authority, for more detailed information.
The state recognises that people often need extra income to pay for care made necessary by disability, chronic poor health, and frailty. There are a number of benefits available from the DSS to help meet the extra costs of care.
Disability Living Allowance care component (DLA) and Attendance Allowance (AA) are available to all, regardless of income, and simply depend on requiring a certain level or care or supervision, either during the day or night, or both. However, it is important to note that performing domestic duties, such as cooking or shopping will not normally count as ‘care’ for DSS benefit purposes. If you just need help with these sorts of tasks, you will not be eligible for the benefit. Payments are set depending on the frequency of care needed. The highest rate, for those who need care during the day and night is currently £55.30 per week (2001/02).
Practical help at home, including help with domestic duties, may however be available from your local authority. However, the amount and type of care available varies significantly from one local authority area to another. In addition, the local authority may choose to levy a charge on certain domiciliary and day care services. Again, how much is charged, and for what, varies from authority to authority, and will depend on your financial circumstances.
For those aged under 65, who are looking after a person in receipt of AA or DLA for more than 35 hours per week, Invalid Care Allowance helps to compensate for their loss of earnings. It is paid at a flat rate, currently £41.75 per week (2001/02), plus additional allowances for any dependants, but it is taxable, and it does count towards means-tested benefits. There are currently just over 400,000 people receiving this benefit.
The Independent Living Fund (ILF), administered by local authorities, provides awards for help with adapting your home. Such payments are means-tested and are budget constrained, in that the ILF has a limited sum from which to make awards each year.
How much does care at home cost?
The figures depend heavily on the type of care needed. However, the average cost of care in the home provided by local authority social services departments has been put at £12.70 an hour, while the private sector equivalent average is £7.00 an hour. At an average cost of £10 per hour, four hours of care per day every day of the year adds up to an annual cost of £14,600.
What happens when it is too difficult to stay at home?
Most people want to stay in their own home for as long as possible. But there may come a time when it is no longer possible for you to manage at home.
If you think you might need residential care there are a number of options available. Care may be provided through a local authority residential home, an independent residential home, or a nursing home (provided by health authorities, NHS trusts or independent organisations).
It is important to note that funding will only be available if the local authority thinks that your needs are best met in residential care, and even then help with meeting the cost of care is based on an assessment of your financial situation. The local authority will not provide any assistance if your finances exceed a set limit. Even if the local authority agrees that residential care is the best solution for you, you may be placed on a waiting list until funds become available.
Do I have a choice of accommodation?
Yes. If you are able to pay you can, of course, choose where to live.
If the local authority is paying for your care, you are still entitled to state a preference. The local authority must place you in your preferred accommodation, provided it is suitable, the accommodation will accept you, and it will not cost the local authority more that it would usually expect to pay for someone with your assessed needs.
If you have chosen a home that is more expensive that your local authority is prepared to pay, you may still be able to move in to your preferred choice. This is possible if someone else is able and willing to pay for the shortfall, and can guarantee payment for as long as you are likely to be in residential care. However, you cannot ‘top up’ payments yourself out of your own capital.
How much does a nursing home cost?
The average weekly cost of a single room in a private nursing home in 1999/2000 was £377, or £271 in a residential home. The average cost per week of a London nursing home is £492; outside London, the average varies from region to region. The latest available figures are shown below.
Region Average Cost per week
North West £369
West Midlands £361
East Midlands £353
East Anglia £378
Northern Home Counties £460
Greater London £492
Southern Home Counties £435
South West £372
Northern Island £344
Source: Laing & Buisson
How long is the average stay in a nursing home?
According to the Department of Health, the average length of stay is around three years for those entering residential homes. Those entering a nursing home are generally much more sick or disabled than those in residential care. Thus, the average length or stay for this group is slightly shorter, at around 18 months to two years.
It is rare for a person to receive care only in a residential setting. In many cases, individuals will have had a number of years of care in their own home before entering residential or nursing homes.
Will the state pay?
There are a myriad or benefits and rules of entitlement, but what follows seeks to gives you some idea of state support should you have to go into a residential home or nursing home.
Social Security benefits, such as Attendance Allowance, designed to help pay for your long-term care needs while at home are withdrawn 4 weeks after you enter a residential or nursing home if you rely on state help to meet the cost of care.
Those with savings or capital in excess of £18,500 (from 1 April 2001), including your home if you are an owner occupier (but not including your personal possessions), are judged to be able to meet the costs of care, and receive no state help other than AA or DLA towards it. If you are married, they will take into account the needs of your spouse at home. For example, jointly owned capital will be divided into two equal shares.
If you have less than £18,500 capital, and little or no income, you may be entitled to Income Support, a state benefit administered by the Department of Social Security. A Benefit Officer at your local social security office will be able to advise you of their detailed assessment of your financial circumstances. However, the way the benefit is calculated means that you will receive enough help from the stat so that, when added to any income you may already have, you are able to meet the ‘reasonable’ cost of care. The money you will have left over for any personal expenditure after paying for your care is set by the Government, and is currently £16.05 per week.
If you are not entitled to Income Support, you may still receive help from the local authority. Again, the value of your capital (savings and other assets such as your home) must be £18,500 or less, and the local authority will take you through a detailed assessment of your ability to pay. They, too, consider most sources of income, for instance your state retirement and occupational pension is split on a 50/50 basis. Again, you will be left with an amount for your personal expenses, currently £16.05 per week.
Just over 100,000 people, or around one in four of all those currently in residential or nursing home care, are paying for themselves.
Will I have to sell my home?
If your income is sufficiently high you may be able to meet the cost of long-term care out of current income. Alternatively, costs must be borne either by selling your home, or by running down savings or assets, or by making alternative financial arrangements, perhaps through payments from other family members, or through long-term care insurance.
Housing is certainly an important asset for the UK population. Currently 65% of households in the UK are owner occupiers, and this proportion is set to grow in the future. There is more money in housing equity in the UK today than in personal pensions and life insurance combined.
But unless you fall into one of the categories below, or can afford to pay for your residential/nursing home needs some other way, the state will require you to meet your own costs of care through selling your home. However, for the first three months in care, the value of your home will be disregarded from the means test.
In addition, when you enter residential care on a permanent basis, your local authority must ignore the value of your home when calculating whether you have to meet the cost of residential care if:
- your spouse or partner still lives there;
- the house is occupied by a relative aged 60 or over;
- the house is occupied by a relative aged under 60 who is ‘incapacitated';
- a child under 16 whom you are liable to maintain still lives there.
- the house is occupied by someone else on a permanent basis who would suffer hardship as a result of this rule. This exemption usually applies to people such as adult sons or daughters, or long-term carers, or to same sex partners. It is important to note that this provision is at the local authority’s discretion.
In all other circumstances, the capital value of your home is taken into account when calculating whether state assistance will be available.
Even if you do not sell your house, the local authority has a duty to value your property at current market values, less any debt (such as mortgages), less 10% in recognition of the expenses involved in selling it. This amount is added on to any other sources of capital you may have. If the total exceeds £18,500, you will receive no help from the state in meeting your costs.
This means that, even if you have no savings, if your share of the value of your house is assessed at more that £18,500 you will have to meet the full cost of care.
Because very few people can afford to meet the cost of long-term care out of income or savings, or through payments from other family members, they have to sell their home. Around 40,000 homes are sold each year to help with funding care costs.
OTHER FINANCIAL ARRANGEMENTS FOR LONG-TERM CARE
What are the alternatives?
There are essentially two types of long-term care insurance policies available: the “pre-funded” variety, paid for in advance by means of regular premiums or a lump sum, and those bought by means of a lump sum purchase to pay for immediate care (known as “immediate need” plans).
Home income plans and other ways of releasing value from your house to pay for long-term care premiums are available. If you have a high level of assets and a low income, your home can then be used to finance your long-term care insurance needs.
Isn’t long-term care insurance expensive?
A judgement needs to be made based on the cost of cover and for how long it would buy you care, if you needed it. For most people, the costs of a single premium policy could quite easily provide care (if you eventually need it) for many years, and yet is often less expensive than a full year’s residential or nursing home care.
In addition, you do not have to cover the entire cost, as you may still have income or assets that you are willing or able to use. In this case, insurance is essentially topping up what you already have available to meet the shortfall.
At what age should I take out long-term care insurance?
The answer here will vary according to each individual’s circumstances. As a rule of thumb, however, the earlier anyone buys cover, the cheaper it will be. A sensible time to consider your options might be when you start to make financial plans at your retirement.
Are long-term care policies just for the elderly?
It is important to remember that severe sickness of disability may strike at any time. Around 10% of those receiving care in the home today are between 30 and 50 years old.
Long-term care insurance policies are available for most age groups.
Does insurance start on the day I buy it?
How would I qualify for help under a long-term care policy?
The main criteria used by long-term care insurers to assess whether a policyholder qualifies for benefits are mental impairment and what are known as “activities of daily living” (ADLs)
If you have bought your policy in anticipation of need and you subsequently become unable to perform an agreed number of ADLs (likely to include your ability to get around and to feed yourself, bathe, dress, and use the lavatory), the claim will be admitted and payment will start at the end of the agreed waiting period.
It is also possible to buy a lump sum long-term care policy even if you are in poor health and in need of care from the moment the policy is taken out. In that case the policy will begin to pay for care immediately.
To whom should I talk about long-term care insurance?
It is wise to discuss any plans you may have for financing possible future care needs with your family and a professional adviser before buying insurance.
Some questions you should ask before taking out a long-term care plan
Immediate needs plans
1. What kind of care will I (and my partner) need?
2. If I/we need to go into a home, what are the annual fees and charges? How much do they increase each year? Can I afford to pay them from my pension, savings or other income? Is there a gap between what I can afford and the fees? How can I bridge this funding gap?
3. Can I/we get suitable care at our own home? What are the likely costs, both in adapting our home, and in paying for a professional carer? Can I pay for this out of my pension, savings or other income? If not, how can I bridge the funding gap?
4. What happens when I/we die soon after taking out the cover?
5. Does the plan depend on stock market or other investment performance to succeed?
6. Where can I/we get independent advice?
Long-term care insurance plans
1. What am I insuring against? How likely is it that I/we will need long-term care?
2. Can I afford long-term care without taking out insurance? How dependent do I want to be on my family or the State? Do I want to leave my assets to my family?
3. Are premium levels fixed? Will they go up in the future?
4. Are benefit levels fixed? Will they go up in the future?
5. Assuming I/we have to go into a nursing home full time – this is the most expensive kind of care – what would be the premiums to cover those costs? Can I afford to pay out a current income? If not, what are my options? Can I cover a proportion of the costs through insurance?
6. What if I/we stop paying premiums? Are we covered, partially, or not at all? Can I/we cash in the policy? If so, what happens if I then need care?
7. What happens if the insurance company goes bust? Would I/we still be covered?
8. Where can I/we get independent advice?
Both kinds of plans
1. Who do I complain to if I don’t like the quality of the care I’m getting?
2. Are the firms or people selling me these plans authorised or regulated?
3. What comeback do I have if I later find that I’ve been sold a product that was unsuitable for my needs?
4. Will benefits be cash payments direct to me or to the care providers? Do I have a choice?
5. Have I got good value for money?
- Ask yourself how likely you are to need long term care in the near future and, if so,
- what could this cost?
- Would you be better off using your own resources to pay for it?
- Would you be entitled to State help towards it?
- Would your family contribute to the costs?
- Get good advice. Speak to your doctor or organisations such as Age Concern or Help the Aged for sources of independent advice.
- Shop around. Compare different quotations and compare costs and benefits. Or ask an independent financial advisor to explain the different plans available.
Where can I find out more?
A number of sources of additional information are listed below.
Association of British Insurers – www.abi.org.uk
51 Gresham Street, London, EC2V 7HQ
Your local Citizens Advice Bureau
Your local Social Services Department
Your local DSS Office
Benefit Enquiry Line 0800 882200 (in Northern Ireland 0800 220674)
Disability Living Allowance Central Telephone Answering Unit 0345 123456
Senior Line 0800 650065
Run by Help the Aged
Professional Advisers such as your solicitor, accountant, or financial adviser.
A subsidiary of The Stationery Office Ltd, this website provides a database of registered care homes in the UK. The site is dedicated to helping care professionals and consumers find Care Home places that match their needs.
This document was prepared by the Association of British Insurers. It draws extensively on information published in the Disability Alliance’s ‘Disability Rights Handbook’ and the Child Poverty Action Group’s (CPAG) ‘Rights Guide to Non-Means Tested Benefits’.
The Association of British Insurers represents the views of the UK insurance industry to the Government and to regulatory and other agencies. The ABI represents over 400 insurance companies, which between them account for over 96 per cent of UK insurance business.
This document is reproduced with the permission of ABI – The Association of British Insurers.