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CARE ADVICE SERVICE
Specialist independent financial advice on funding care from Big River Ltd
CARE FEES PAYMENT PLANS
What is a Care Fees Payment Plan?
A Care Fees Payment Plan is an insurance policy that is similar to an annuity. In return for a premium, an insurance company guarantees to pay a benefit, usually monthly, for the lifetime of the policyholder. The benefit should be free of tax if paid direct to your care provider.
The benefit would normally be set as the difference between your income and your care fees together with any other regular expenditure.
The insurer will ask for a report from your GP and your care provider so it can individually underwrite your plan, based on what it believes to be your likely life expectancy.
Once you have paid the premium, your money that remains is broadly protected as it will not normally need to be spent on care. The premium is not returnable.
A Care Fees Payment Plan can be used to fund care in a care home or care in your own home.
EXAMPLE
Mrs Edith Day
Here’s an example of how it could work.
Mrs Edith Day is 86, and suffers a number of minor conditions that mean that she needs to live in a residential care home. Having sold her home she now has £420,000 with which to fund her care.
Edith has a monthly income of £1,650 and her care home charges £1,250 a week or £5,430 a calendar month, giving Edith a shortfall to fund of £3,790.
We searched the market for the best Care Fees Payment Plan for Edith and received a quotation for £276,000 for a plan where the monthly benefit of £3,790 increased each year in April by 5% with the aim of keeping pace with care home fee inflation.
If Edith buys this plan she will know that the benefit will always be there to pay towards her care costs, no matter how long she lives. She also knows that the £144,000 that remains should be available for her family and may even grow.
The rates used for the care plan are genuine but other aspects of the case have been altered to preserve confidentiality.
WHERE’S THE CATCH?
The premium is non-returnable
In this example, if Edith were to die shortly after taking out the plan, the premium paid has been lost so only £144,000 of her estate would remain.
Can I protect the Premium?
You can buy additional insurance to protect some of the premium value in the event of an early death. This can offer reassurance and in this example, the premium would rise to £312,000 for a plan that guarantees to return a minimum of 50% of the premium, either in benefit payments, or if less than this has been paid out at the time of death, the balance is paid as a lump sum.
THERE IS A BETTER WAY?
The Deferred Care Plan
We usually advise clients to buy a Deferred Care Fees Payment Plan. These provide the same long term guaranteed benefit after a waiting period has passed. As a result the premium is lower and this reduces the potential loss in the event of an early death.
In this example, a plan with a two-year waiting period would cost £190,000 or a plan with a four year waiting period would cost £104,000. The premium is non-returnable and is paid upfront. The benefit payment starts after the waiting period has finished.
This means that you keep more of your money in the early years but still benefit from the same long term protection.
Why Not Pay as You Go?
Many of our clients do, although we would always encourage you to consider a care plan first. In Edith's case we estimate that her funds would run down to the local authority funding limit after around seven years and three months. Edith could have to move to a different care home and her beneficiaries could ultimately be left with as little as £14,250.
We explain how a 'pay as you go' portfolio might work here.