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 would normally be set to be 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 and will individually underwrite your plan so that it reflects what the insurer believes to be your likely life expectancy.
Once you have paid the premium the money that remains is broadly protected as usually it will not need to be spent on care.
A Care Fees Payment Plan can be used to fund care in a care home or care in your own home.
Mrs Edith Day
Here’s an example of how it might work. The details of the care plan are genuine but other aspects of the case have been altered to preserve confidentiality.
Mrs Edith Day is 83, and suffers a number of conditions that mean that she needs to live in a residential care home. Having sold her home she now has £240,000 with which to fund her care.
Edith has a monthly income of £1,300 and her care home charges £750 a week or £3,250 a calendar month, giving Edith a shortfall to fund of £1,950.
We searched the market for the best Care Fees Payment Plan for Edith and received a quotation for £119,000 for a plan where the monthly benefit of £1,950 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 £121,000 that remains should be available for her family and may even grow.
Where’s the Catch?
The premium has gone
In this example, if Edith were to die shortly after taking out the plan, the premium paid has been lost so only £119,000 of her estate would remain.
Can I protect the Premium?
Yes, you can buy additional insurance to protect some of the premium value in the event of an early death. This can be expensive and in our view is usually poor value.
Is There a Better Alternative?
The Deferred Care Plan
We think so. It is often better 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.
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 eight 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.