Insurance products needed to fund long-term care


A shortage of insurance products to fund long-term care means people will have to rely on their savings to meet the new £75,000 cap on care costs, experts have warned.

Under plans set to be outlined later today, people will be expected to pay £75,000 for care before the state steps in. This figure will only cover the cost of nursing care not accommodation and food.

The cap will be partially funded by freezing the inheritance tax threshold.

However, the failure of many pre-event long term care insurance products launched in the mid-1990s by the likes of Norwich Union and Axa PPP Lifetime Care, mean retirees will need sufficient income to cover care costs.

Danny Cox, head of advice at Hargreaves Lansdown, said: "I think it is highly unlikely insurance companies will re-create pre-funded long term care insurance schemes. Their fingers were burnt the last time they tried them and I don't see what has changed in the market to make them more attractive either to the investor or the insurer.

"Ideally people should be building their pension and other savings to help meet the cost of care should this be required."

There is also concern some people will have to dip into the equity in their home to meet care costs. It is estimated that currently 40,000 people per year are forced to sell their homes to fund care costs.

While the proposed cap will mean an end to unlimited bills, £75,000 is still a lot of money, and is well above the figure recommended by the Dilnot report.

Steve Wilkie, director of equity release specialist Reponsible Equity Release, said: "Realistically the only way many people will have of accessing such a large sum is by dipping into the equity in their home.

"The changes should help the government achieve its aim of reducing the numbers who are forced to sell their home. But they are not enough to end the nagging anxiety that many people feel as they begin retired life."

However, Neil MacGillivray, head of technical support at James Hay Partnership, is confident the insurance industry will react to the cap by launching new products.

He said: "The cap makes planning easier. Insurance companies know people will need a maximum of £75,000 so they should be able to come up with suitable products."

Either way, the new rules emphasise how important it is for retirees to have sufficient income.

Yet research reveals people are not doing enough to plan for the future.

According to Prudential, only one in five people planning to retire in 2012 made any financial provision for ill health in retirement, falling to 15% among those aged 65-plus.

Only 45% of those planning to retire last year had planned for the fact they may need more income as they get older.

Although average life expectancy for men over the age of 65 is 17.6 years, and 20.2 years for women, healthy life expectancy is just 9.9 years for men and 11.5 years for women.

Vince Smith-Hughes, retirement expert at Prudential, said: "While figures show that life expectancy is increasing, healthy life expectancy is flat-lining and it's imperative for pensioners to ensure that money is set aside in preparation for every eventuality.

"It's important not to forget that health will worsen as pensioners get older, so careful management of savings and seeking advice from a financial adviser or retirement specialist is essential for those approaching retirement."


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