Could life policies be key to care-cost problem?

Saturday 14 July 2012

Could an old-fashioned life assurance policy be the way families cover the cost of long-term care and leave their legacies intact?

cost: In Scotland, free personal care reduces the care-home cost by around £8500 a year, but anyone with assets over £24,750 still has to pay the rest of the bill. Picture: Colin Mearns

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HELEN PRIDHAM

This is one suggestion put forward following publication of the UK Government's long-awaited proposals on long-term care this week.

In Scotland free personal care reduces care home costs by around £8500 a year (or £12,300 with nursing care). But anyone with assets over £24,750 still has to pay the rest of the bill, which even at local authority rates totals £25,234 a year, or £29,432 with nursing.

Although the UK Government has once again delayed a decision on funding, it did announce that those needing care will be able to take out a loan so their homes do not need to be sold until after their death, when it will be repayable with interest.The desirability of taking out such a loan is questionable. Janet Davis of Symponia, the professional body for care fees planning advisers, is opposed to the idea. She said: "The new deferred loan is nothing more than an open-ended bridging loan, and no-one in their right mind would establish one of those for more than a few months."Some families may decide to take up the option but it will still mean their beneficiaries receive less. As an alternative, Michael Ward, managing director of payingtoomuch.com, a comparison website, has suggested repaying the loan with the payout from a whole-of-life assurance policy. But taking out life insurance when you are seriously ill will not be an option, and he conceded: "If anyone is on the cusp of needing long-term care, it is too late."He believes it will be a solution for people in their forties or fifties if the UK Government eventually honours its pledge to put a cap on the amount that individuals would be expected to contribute towards the cost of their long-term care, as recommended by the Dilnot Commission. The sum assured under the policy could then match the cap. However, the UK Government has not said how much the cap will be.Whole-of-life assurance had gained a poor reputation after it was made into an investment style contract by unit-linked life assurers in the 1980s which meant that policyholders faced steep rises in premiums if the investments didn't perform. More recently, poor value "guaranteed acceptance" whole life policies have been heavily sold in the form of over-50s plans.Matt Morris, of LifeSearch, points out that guaranteed- premium, fixed-sum assured whole-of-life policies are available nowadays from a number of insurance companies including PruProtect, Zurich, Canada Life, Skandia, LV=, Legal & General and Scottish Provident. Morris says using them to cover the cost of care fees sounds plausible, though he points out: "You would have to be sure you weren't paying more in premiums than your estate got back."Mr Ward has already done the sums on this point and they indicate that in most cases payouts would be higher. For example, if the care fees cap was £65,000, the monthly premium for a life assurance policy of the same amount for, say, a 54-year-old man would be £65.94. If he died aged 94, he would have paid a total of £31,651 in premiums, so the policy payout would produce an excess of £33,349. Another danger would be whether the policyholder could afford to keep paying the premiums as he or she got older. With a whole life policy, if you stop paying the premiums before you die, you get nothing back.In the past the insurance industry has sold specialist long-term care insurance policies which were intended to pay out if care was required. But the take-up was very low. The only long-term care products available are "immediate care annuities" which make payments towards care home fees.David Brown, insurance partner at accountants PricewaterhouseCoopers, says insurers had been discussing a range of new products assuming the UK Government would adopt the recommendations of the Dilnot Commission, and are disappointed that it has once again failed to grasp the funding nettle. He says "Insurers have been looking at developing a care fees annuity-type product which would be available across the whole market, but they also believed that once consumers were comfortable with long-term care funding the market for long-term care products would be reinvigorated."Dr Ros Altmann, director-general of over-50s group Saga, said: "Up and down the country families will still face losing everything if the level of care they require does not qualify for NHS or council help. Those who have put savings aside throughout their lives remain at risk of losing everything, while those with no assets receive free care."

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Could life policies be key to care-cost problem?

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