Long term policy insurance

Long Term Care Insurance

A lot of people think that the State will care for them when they become very elderly. If you are very poor then this assumption is correct. However, if you have any form of modest savings then this assumption is completely wrong. The State has no obligation to look after you in your old age unless you have a specific medical condition that requires hospitalisation. So you are well advised to consider the merits of long term care insurance or make alternative financial arrangements for your old age.
 
What is long term care insurance?
 
A long term care insurance policy will  - as the name suggests - pay for the costs of long term care either in a residential or nursing home or in your own house. Like most insurance policies, the payout occurs only in defined circumstances and in return for the payment of regular premiums.
 
There is no precise definition of 'long term care'. However, broadly the phrase covers care that is likely to be needed for the foreseeable future and which results from permanent conditions. Arthritis, dementia and strokes are examples (ie conditions where the NHS is not under any obligation to provide treatment for a sustained period of time). You would not normally be entitled to receive payment under a long term care insurance policy where you are recovering from a short term illness.
 
Payments under long term care insurance policies are usually made for some or all of the following:
 
 - the costs of staying in a residential home
 - the costs of someone looking after you in your home
 - the costs of replacing,say, a member of your family who is looking after you with a temporary paid carer while the family member goes away (eg on holiday)
 - the costs of installing specialist equipment in your home (eg stair lifts, handles etc)
 - the costs of certain medical services such as speech or occupational therapy or physiotherapy
 
The following would usually be excluded from the definition of long term care. Costs which result from:
 
 - schizophrenia, depression or other similar conditions
 - self inflicted harm (eg attempted suicide)
 - HIV/AIDS
 
How are long term care insurance policies structured?
 
There are three basic types of long term care insurance policy:
 
(i) pre funded policies. Most pre funded policies are conventional insurance products. You pay an annual premium and the insurance company covers the cost of your long term care should you require it. However, there are two different types of pre funded long term care insurance policy and, if you intend to purchase one, you should make sure you know which type you are buying. A standard pre funded policy  works on the basis that the insurance company pays the policy holder if he or she requires long term care but if no long term care is required during the life of the policy holder the insurance company keeps the premiums. However, you may also come across something (succinctly) called a 'combination single premium investment bond and regular premium long term care policy.' These are complex financial instruments and you are advised to take specialist advice before buying one. In essence a combination single premium investment bond and regular premium long term care policy combines a pure insurance product with a  savings scheme. The policy pays out if long term care is required but is also designed to leave the policy holder's estate with a significant financial asset once the policy holder has died. The annual premiums on these instruments can be very high.
 
(ii) immediate need plans: an immediate need plan is an insurance policy that entitles you to claim compensation from the insurance company for the cost of long term care the moment the policy starts. For obvious reason these policies tend to be favoured by people who find themselves in need of long term care and who have previously not done anything about insuring themselves against the cost of it. Equally obviously the upfront cost of these types of policy is very large. Effectively the insurance company is taking a gamble on how long you will live for. If you are in a financial position to contemplate buying this type of insurance policy you should also consider whether there are other ways of meeting the cost of you care which do not involve using the insurance industry
 
(iii) equity release plans: an equity release plan is an insurance product that releases cash from the policy holder's house in order to pay for long term care. With the dramatic increase in the value of property that has occurred in the UK over the past 20 years these policies have become increasingly popular. Many people, even on relatively low earnings, have significant cash locked up in their houses. Rather than selling their houses to pay for long term care many people take out an equity release plan, particularly where there is someone else living in the property in question. You should take care, however, to ensure that the provider of the equity release plan places a realistic value on your property. Also ask for a detailed breakdown of how the policy has been priced. Many equity release schemes contain hidden commissions which are paid to the company writing the policy. Some of these can be very large indeed.  
 
What are the State's obligations vis a vis long term care?
 
As referred to above, the State is not under any obligation to fund the cost of care for the elderly unless such care requires hospital treatment. Those with long term disabilities are obviously entitled to receive specific disability allowances. But, as a general rule of thumb, you should assume that you will need to look after yourself - in a financial sense - in your old age. There are exceptions for the very poorest:
 
 - if you have total assets of less than £11,500 the State will normally pay for the costs of long term care. (Total assets meaning, for this purpose, cash, savings and investments but also the value of your property 3 months after you move into a home if no other member of our family is living there)
 
 - if you have total assets of between £11,500 and £18,500 the State will normally pay for some of the cost of long term care    
 
 - if you have total assets of more than £18,500 the Sate will not normally pay for any of the costs of long term care
 
What triggers payment by the insurance company under a long term care policy?
 
The trigger for payment by the insurance company under a long term care policy is typically where the policy holder is unable to perform tasks known as 'Activities of Daily Living'. The precise definition of 'Activities of Daily Living' will vary from policy to policy. However, the term usually means where the policy holder is unable to perform normal tasks such as bathing, dressing and feeding or where he or she has extremely limited mobility. As mentioned above certain mental conditions are also usually included in this definition (including dementia and Alzheimers).
 
Often the insurance company will insist on receiving a report from the insured party's doctor before making any payments. Payments are also usually held up for a 'waiting' period - normally around 3 months.