Long-term care is when a person needs someone to care for them because they cannot manage a number of daily living activities on their own any longer and it is envisaged that this will happen for the foreseeable future. It comprises of help with daily living activities such as washing, dressing or eating and can take place in the home or in a residential or nursing care home.
The onset of needing care can happen at any time, this change can happen very suddenly as when a person suffers a stroke or accident. Alternatively their dependency needs may increase slowly, typically as a result of permanent conditions such as arthritis, a stroke or dementia.
How does a long term care insurance policy work? Basically this is a lump sum insurance plan that guarantees a regular payment to help pay for life care. The purchase price is progressively cheaper relative to adverse health and older age unlike life insurance which is progressively less costly due to younger age and better health.
The risk of a life time care insurance policy is that if a person dies early the original outlay is lost unless there is an element of insurance against premature death.
Long term care insurance plan premiums are calculated based on the individual’s life expectancy. this is forecast by reference to medical information provided by the person’s family doctor. Also insurance companies endeavour to speak to care home staff for an up to date hands on assessment. The cost of a care plan is less relative to correspondingly deteriorating health and frailty.
The amount of long term care insurance payments required is determined by the monthly cost of care less the person’s state pension, benefits and other income such as private pensions. The balance required to meet the care fees bill is the shortfall. It is this regular shortfall that can be paid for life by payment of a once only lump sum to an insurance company. It is possible to pay extra to make sure that the benefits increase each year in line with rising care costs.
Why not suggest to the care home if they will agree to a fixed 5% fee increases annually? In this way the care plan can be arranged to match these rises every year.
The only potential snag is that the person’s health deteriates to such an extent they may need to move to another more expensive care provider. However there may be help in the form of a nursing care contribution or even fully funded contuing care. In the case of the latter, further care fees payments may not be necessary and the care plan policy benefits can be credited direct to the individual’s account.
Payments from long term care policies are payable direct to registered care providers and taxed in their hands as a trading receipt. in this way there is no tax payable on the income stream by the person receiving care.
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