Elderly people require Long term care when they need someone to care for them because they are no longer able carry out a number of every day normal activities unaided. These activities require assistance with day to day personal actions such as bathing, putting on clothes or toileting and can occur at home, in residential or nursing care.
Quite often a stroke or heart attack happens out of the blue, resulting in the need for immediate long term care. Other symptoms such as Alzheimer’s disease can develop more slowly requiring increasing levels of care.
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 time 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.
When a person dies, the income stops and the care plan purchase price is non refundable unless there is some form of capital protection against early demise.
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 lump sum premium is calculated by taking the shortfall between the income coming in and the cost of the care fees going out. The resulting shortfall can be accommodated by payment of a single premium to an insurance company. Automatic indexation or escalation of benefits can be included to cover annual care fee increases.
When arranging the annuity, it is a good idea to ask the care provider about the history of price increases so that this can be taken into account when arranging the level of benefits required. Better still ask the care provider if they will agree to fixed annual fee rises at say 5% in return for direct payments into their account that increase automatically every year.
Obviously, if the care costs rise above the level of insurance payments, there could be a further shortfall. But to all intents and purposes, this is usually manageable from other savings, unless the level of care required has altered drastically. In this case, a further review of the situation should be done before parting with more funds. For example, the care needs may have escalated to the point of the person becoming eligible for free personal care known as continuing care.
One main advantage of this type of scheme over others is the tax efficiency. This is due to the fact that the benefits are paid direct to the care provider so has no impact upon the person receiving the care.
before you start providing for long term care payments be sure you access Barbara Davies’s vital free report about long term care insurance plans .