What are the options if you want to buy a long term care plan?

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Whilst many people don’t have to pay for their own care, thousands of people do. The problem is we’re not very well prepared for it. According to Aviva’s Real Retirement Report over 70% of over 55s don’t think they should have to pay for care and those who do reckon the cost should be less than £3,500.

Paying for long term care
The rules around the funding of care in someone’s home or a care home are complex (and are covered in an article called who pays if your relative needs care?). But if you’re faced with the prospect of sorting out paying care home fees for a relative who doesn’t qualify for funding from their local authority, you should take advice.

– Don’t simply rely on cash in the bank. If you have to sell your relative’s home, often the worst thing to do is to put the money in the bank and use it to pay for care. Although many people don’t stay in a care home for more than two years, if your relative does need care for a long time you could run out of cash.

– Talk to a specialist financial adviser. The adviser should be qualified and independent or you may not get the best advice.

Buying a plan to pay for care
There are different ways to pay for care, but one is to buy an immediate care plan. It’s designed to pay for care for as long as your relative needs it. These policies aren’t cheap and can cost tens of thousands of pounds.

SAVVY TIP: Care plans aren’t suitable for everyone and they’re not appropriate in all circumstances, which is why independent advice is so important.

But with care home fees costing £35,000 a year or more the costs can add up. Janet Davies of Symponia, a specialist umbrella group for care fees planners, and who’s SavvyWoman’s long term care expert, has this advice:

– Get underwritten quotes These are quotes that are based on your relative’s situation rather than an “indicative quote”.

– Avoid ‘best guess’ premiums. Indicative quotes are basically “best guess” premiums, arrived at by using a dedicated computer programme. Here the financial adviser relies on medical knowledge of the relative or person who has power of attorney.

SAVVY TIP: The final underwritten quote (using actual confirmed medical evidence) often differs widely from the indicative version and as the client has to go through the underwriting process anyway, the step is unnecessary and wastes time

– Only use the services of an independent financial adviser who can look at the whole of the market. Although there are only two providers of immediate care plans at the moment, it is vital that clients obtain quotes from both.

SAVVY TIP: Financial Institutions are sometimes only linked to one provider. This factor will become even more important when more provider companies enter the marketplace.

– Ensure that adviser is appropriately trained. Although the Financial Services Authority states that a new adviser has two years from entering this marketplace to pass the exam, clients should only seek advice from advisers who are already qualified.

SAVVY TIP: The required exams are called CF8 (via the Chartered Insurance Institute) or CeLTCI (Institute of Financial Services).

– Ask if they are members of a professional body. Membership of a body such as Symponia and/or SOLLA (the Society of Later Life Advisers) is a good additional benchmark.

The plan
Once you’ve found an adviser you’re comfortable with, you should make sure that the care fees plan is tailored to your relative’s circumstances. Janet Davies of Symponia says:

– Work out how much cover is needed. The amount the policy pays out every year must be based on the difference between the costs of care and the available income not the amount available for the premium.

SAVVY TIP: Premiums will be based on the amount needed x the estimated life expectancy

– Compare costs. The adviser must show the different premiums for a plan — one that increases with inflation and one that does not.

– Get protection built in. The adviser should always include capital protection (i.e. protecting the premium in the event of an untimely death).

– An immediate care plan should never be bought in isolation. The adviser should know the wishes and objectives of the client.

SAVVY TIP: If you’re being recommended to buy an immediate care plan, it should always be compared to other scenarios, such as doing nothing at all or investing the money.

Useful links:
You can download a guide to care fees planning written by Janet Davies at Symponia.

Related articles:

An independent commission says there should be a cap on care fees

Giving away your home to avoid care fees

Every year thousands of people sell their homes to pay for care fees

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