Financial protection

Statistics show that we are all living longer, mainly due to advances in medical science and better living conditions and lifestyles. Unfortunately, living longer does not always mean that we will remain in full health.

According to the 2021 census, the over-65 ac...

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... term care planning process.

This introductory presentation is from a consumer information program we created covering a variety of financial education areas. This presentation will be of most benefit to those learning about this area for the first time:

 

The FCA regulates long term insurance products including those which are investment based as well as pure protection products (from 31 October 2004).

The FCA definition of long term care insurance is:

“Long-term care insurance is a long term insurance contract:

Which provides, would provide at the policyholder’s options, or is sold or held out as providing, benefits that are payable or provided if the policyholder’s health deteriorates to the extent that he cannot live independently without assistance and that is not expecte...

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...or LTC are:

All pure protection LTCI products are treated as ‘designated investments’ i.e. all LTCI products should be treated consistently regardless of the structure of the product

LTCI is covered by the FOS and FSCS

There are specific T&C requirements for advisers offering advice in this area

There are the usual pre and post-sale requirements

Insurance: Conduct of Business Sourcebook (ICOBS) rules apply to claims handling

What are the two distinct types of LTCI defined by the FCA?

Answer : Purchase course for answer

More than any other area of advice, the availability of state benefits for the provision of long term care needs will have a huge impact on the advice given to clients. It is a complex area as England, Wales, Scotland and Northern Ireland each have their own criteria and the way in which these rules are applied can vary, even between different local authorities within these areas.

It is important to understand the different types of care provided and who is responsible for meeting the costs:

Where the primary need for the patient to be in care is health based, the NHS is responsible for the full cost. This is known as NHS continuing care or fully funded care and is defined under the National Health Service Act 2006. The needs of an individual are assessed by the patient’s Integrated Care Board (ICB) in England or Health Board in...

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...104.90 per week. If they are also assessed as needing personal care the council will pay an additional £233.10 per week. Attendance Allowance and the care component of disability living allowance are not paid.

Attendance Allowance

Where the cost of care is privately funded an individual 65 or over can claim Attendance Allowance:

This is tax free and non-means tested

It is payable at two rates

A lower rate of £68.10 per week (2023/24) where care is needed only during the day or only at night

A higher rate of £101.75 per week (2023/24) where care is needed both during the day and at night

Individuals under 65 may qualify for Disability Living Allowance (DLA) or the Personal Independence Payment (PIP) instead.

Who pays for nursing care provided in nursing homes in Wales?

Answer : Purchase course for answer

If a claimant applies for local authority payment of the care the local authority will assess the claimant’s ability to pay the fees out of their capital assets and/or income. Local authorities have a duty to:

Assess someone’s care needs following a request

Determine by means test or financial assessment whether the local authority should fully or partially fund the care required

Determine maximum fee levels

For respite care a local authority is only required to apply means-testing rules after 6 weeks.

The local authority uses the Care Act 2014 when making this financial assessment. This can be found at www.legislation.gov.uk/ukpga/2014/23/contents .

Capital and income are looked at separately, but the amount of capital can reduce the level of local authority funding as we will see next.

Personal expense allowance

An individual should always be left with a sum of money to cover their personal expenses

This amount is set by the Government each year

For 2023/24 this amount is £28.25 per week in England. Amounts differ slightly in the rest of the UK

Capital

Claimants with assets of £23,250 or more in England & Northern Ireland, £50,000 in Wales and £32,750 in Scotland will have to meet the ful...

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...ould be excluded for means testing purposes.

Where the local authority can prove that a transfer was done deliberately or intentionally to reduce the individual's capital that would otherwise be means tested, the local authority can treat the individual as having ‘notional capital’ to the value of the asset disposed of. There is no time limit set out in the Care Act 2014 with regards to when transfers are made so local authorities can look back further than just the period immediately preceding the assessment.

Deprivation of assets is illegal and the local authority could claim back the cost of care fees plus all the legal costs through the courts, which could end up being very expensive.

The Care Act 2014 does not definitively define what should be considered deliberate deprivation; however, a guideline that has been used previously is that it would not be reasonable for a local authority to infer deprivation where the gift was made at a time and in circumstances that the donor was in good health and did not anticipate needing care.

What Act does a local authority use when making a financial assessment of an individual’s eligibility to receive funding towards long term care costs?

Answer : Purchase course for answer

There are a variety of different types of care available and the type of care appropriate for each individual will depend on their personal circumstances, the type of assistance they require and their own personal requirements.

Family Care

Traditionally, care has been provided by friends and family, usually in the individual’s own home. However, modern lifestyles mean that families live further apart and may be unable or unwilling to provide support. Higher divorce and lower marriage rates mean that more people do not have a spouse or partner to support them.

There are still a significant number of unpaid carers in the UK; the 2021 census showed that there are nearly 5 million unpaid carers in England and Wales - around 9% of the total population. Of this, there are 2.5 million people caring for more than 20 hours per week. (Source: Office for National Statistics)

Professional Care

Where family care is not available or not wanted by the individual, or the care needs exceed those that could be delivered by an untrained person, professional care would be required.

Domiciliary Care

This is where care is provided in the individuals’ own home. The care package is variable and able to deal with short term variations such as recovery from a hospital stay or new needs as they arise.

It could cover a variety of needs from nursing care to meals on wheels, depending on the individual’s requirements, and is most suited for those who do not wish to move from their own surroundings. Where a high level of care is required this can be expensive to provide in a home environment.

Nursing and Residential Homes

Nursing homes are able to provide nursing care where residential homes are only able to provide ancillary care. Some care homes will provide both residential and nursing care where others offer specialist services such as the care of people with dementia.

Respite Care

This is temporary care which can be provided at home or in a care home. It is short term and designed to cover a specific need such as recovery after an operation. Respite care can develop into a long term care need.

Hospice Care

This is designed for people of any age that are terminally ill and approaching the end of their life. It is not designed to provide long term care.

Sheltered Housing, extra care housing and close care

This is suitable for someone who requires supervision rather than care and who wishes to maintain a degree of independence. This is usually provided by self-contained apartments or bungalows in a complex that is managed by a warden. The warden will remain in close contact with the residents and would be on call for emergencies.

Cost of care

The cost of care varies greatly and the information in this section should be taken as a guide only. The table below shows the average weekly care home fees in 2022  that applied to for-profit homes.

AREA

RESIDENTIAL CARE

NURSING CARE

Frail elderly

Dementia

Frail elderly

Dementia

North East

£636

£652

£882

£913

North West

£629

£645

£872

£902

Yorkshire and the Humber

£641

£657

£889

£920

East Midlands

£688

£705

£955

£988

West Midlands

£674

£691

£935

£968

East of England

£688

£705

£955

£988

London

£809

£829

£1,123

£1,161

South East

£858

£880

£1,191

£1,232

South West

£805

£825

£1,117

£1,156

Wales

£709

£727

£983

£1,017

Scotland

£850

£869

£863

£893

Northern Ireland

£546

£558

£720

£745

UK

£667

£682

£924

£956

LaingBuisson Care of Older People UK Market Report 2021.

Factors which will affect how much is charged include: the area, the type of care needed, the type of accommodation provided, the quality of the home and any special features offered, e.g. gardens, supported activities, facilities for specific faiths, etc.

What type of care is delivered in the patient’s own home?

Answer : Purchase course for answer

Long term care insurance (LTCI) provides benefits which will assist with the cost of providing for long term care in a structured way. The services that can be provided include:

Domestic help

Physical aids

Medical services

Nursing home care

There is great variety between different insurers in terms of the cover...

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...or lump sums – currently there are no new plans of this type available

Equity release plans

A whole of life policy where part of the sum assured is paid early if the life assured meets the definition of care set out in the policy

What are the four main types of LTCI plan?

Answer : Purchase course for answer

These types of plan are impaired life annuities and are designed to provide benefits to fund the cost of care immediately:

The client must already be ill and resident in or about to move into a nursing home

They will be medically assessed and must also be unable to complete at least one activity of daily living (ADLs)

ADLs are defined as:

* Mobility

* Washing

* Dressing

* Transferring

* Feeding

* Continence

* Mental ability

The plan is effectively an impaired lif...

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...certain number of months or years and are often purchased by individuals who are concerned that they would be unable to continue to fund the costs of their care after a period of time. The costs of these policies tend to be lower.

Sheila is in good health and living at home. She is considering a move into a residential home for company as she lives on her own and her family do not live close by. Would Shelia be eligible for an immediate needs plan?

Answer : Purchase course for answer

Pre-funded plans can be both pure protection and investment-linked plans. Pre-funded plans of both types have virtually disappeared from the marketplace due to poor sales and market falls.

Pure protection plans

Premiums can be made as a lump sum or regular premiums

There would generally be no refund of premium in the event of cancellation and cover would usually lapse if premiums are not maintained

Benefit will be triggered when the insured is unable to perform a certain number of ADLs or where the claimant is cognitively impaired for a specified length of time

The ABI has a model set of ADL definitions, but typical ADLs are:

* Mobility - the ability to...

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...be eroded by the cost of LTCI

As could higher than expected premiums due to adverse claims experience

Some of these plans can also be used for IHT mitigation

Cash care plans

These plans pay out a cash sum and/or income for a specified period

There is no link between the costs of care and the amount paid out

Cover is paid out on specified physical and mental illnesses that are likely to occur with age, and these could include:

* Alzheimer’s disease

* Motor neuron disease

* Parkinson’ disease

* Pre-senile dementia

They also cover failures of ADLs

Which type of plan includes an investment element?

Answer : Purchase course for answer

A problem faced by many individuals is being asset rich and income poor. In these circumstances the principal private residence could be used to raise capital, which could in turn be used to fund the cost of long term care premiums.

When considering this option due consideration should be given to the treatment of an individual’s main residence where they have financial dependents that will continue to live there.

There are several different types of equity release scheme and a great deal of variety within these categories.

Lifetime mortgages

A capital lump sum is released secured on the main residence

The loan and any outstanding interest are repaid on the death of the individual, or

Where they are selling their home to move into a care facility <...

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...t to live in the property until death or sale of the property

Some plans will require a 'peppercorn' (or very small) rent

Funds can be released in tranches rather than all up front

Where the homeowner retains some ownership of the property they will be able to benefit from any future growth in property prices

It is unlikely that the homeowner will obtain full value for their property

It is only available to older lives, i.e. those over 60

It is difficult and sometimes impossible to reverse the process

The homeowner will probably make a loss if they move out of the property in the early years

With which type of equity release scheme is it possible to have the capital released in tranches?

Answer : Purchase course for answer

Clients will have built up savings and investments over their lifetime. Where these exceed the minimum capital and income requirements set down in the Charging for Residential Accommodation Guide 2011 (CRAG) they will be required to partially or fully fund the costs of long term care. Careful planning is an important part of this process.

Firstly, draw up a schedule of all the client's assets and liabilities including current values, asset types and any income produced or the potential to produce income

Take account of the taxation implications of any sale of assets or financial penalties that may be imposed

Establish any state benefits that may be claimed

Establish the projected cost and timescale for providing the cost of care, making assumptions about future increases

Also consider the type of care to be provided and any future care needs

Account should be taken of the income and capital needs of any financial dependents

Once the income and capital requirements have been established, the existing assets should be reviewed as to th...

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... sum assured on the death of the life assured.

Applicants for viatical settlements must:

Be the beneficial owner of the policy proceeds at maturity or death

The policy must have been issued by a UK life office

Be assignable to a third party or have regular premiums still being paid

The viatical company would require evidence of the policy and of the terminal illness.

The handling of medical evidence is a sensitive area especially where the terminally ill person does not have full mental capacity. The loss of death benefits to the family may also be an issue.

Issues to consider for LTC planning

The client’s income

The client’s capital

The main residence

A history of any gifts

State benefits

Existing insurances

Costs in care homes in the desired area

Consideration of reducing costs by moving

The medical condition and the length of time care would be required

The cost of recommended care and affordability

What tax could apply where capital assets are sold?

Answer : Purchase course for answer

The selection of the right care package will depend on various issues:

The health and care needs of the individual

The services that are available and the costs

The budget that is available

The personal wishes of the individual requiring care

The medical condition a...

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...can be a very tricky area as the person needing care may not want their family knowing about their health or financial matters. It is usually a good idea to include family members in the planning process to provide a better all-round solution and avoid problems in the future.

 

Enduring powers of attorney

An enduring power of attorney allows the attorney to make decisions about the donor’s finances and property. If the attorney becomes aware the donor is (or is becoming) mentally incapable, they need to register the enduring power of attorney with the Court of Protection. As soon as the enduring power of attorney has been registered the attorney can continue to act despite the donor’s mental incapacity. Registration with the Court of Protection must be made by the attorney as soon as possible because any decisions the attorney makes once the donor has become mentally incapable and before registration with the Court of Protection are invalid.

A donor is unable to revoke an enduring power of attorney that is registered with the Court of Protection without the court’s permission although it will automatically be revoked on bankruptcy.

Under the Enduring Powers of Attorney Act 1985 an attorney is restricted in the gifts they can make out of the donor’s property. Gifts can only be made where:

The donor might be expected to provide for the donee’s needs;

It is a reason...

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...rney - the person chosen to make decisions about health and welfare, property and finances, or both

Donor - the person who makes the LPA

Named person - someone that the donor has asked to be notified when an LPA is registered

Certificate provider - this is the person chosen to complete part B of the form, and in so doing confirms that the donor understands the LPA and was not put under pressure to make it

Witness - someone who witnesses the signatures

Powers of attorney interaction

Since 1 October 2007 it is no longer possible to take out a new enduring power of attorney. However, existing enduring powers of attorney (whether registered or not) can remain in place. If the donor becomes mentally incapacitated after 1 October 2007 it is still possible to register the enduring power of attorney.

It is not possible to change an enduring power of attorney to a lasting power of attorney at any time. If the donor of an enduring power of attorney is still mentally capable they may decide to revoke it at any time.

What do the two types of Lasting Power of Attorney cover?

Answer : Purchase course for answer

The Commission on Funding of Care and Support was an independent body established in July 2010, tasked by Government with reviewing the funding system for care and support in England. 

The Commission was chaired by Andrew Dilnot and it built on the extensive body of work already done in this area and carried out new analysis before providing advice and recommendations on how to reform the system to Government on 4 July 2011.

The report highlighted that the current funding system is in urgent need of reform: it is hard to understand, often unfair and unsustainable. People are left exposed to potentially catastrophic care costs with no way to p...

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... inflation

The above changes would  be funded by an additional tax charge of 1.25% taken as an increase in National Insurance in 2022/23 but becoming a stand-alone charge from 2023/24. This charge was expected to raise £12 billion/year for the funding of social care and health services. The additional charge was reversed in November 2022.

Although this is progress in the right direction it seems to be based on the amount the local authority would have been prepared to pay and not the actual amount being paid by the care recipient, meaning that the recipient may still be responsible for costs after the ‘cap’ has been reached.

This revision test (opens in a new...

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... test will be added to your CPD certificate.