Planning for Long-Term Care Financing
When preparing for the long-term care and support of a loved one, it’s crucial to consider the financial aspects as early as possible.
At UKHCS, we’ve been assisting families across the country in understanding the various ways they can finance in-home care. This includes exploring available funding options and financial initiatives that can help cover the costs of care.
For individuals with complex healthcare needs requiring nurse-led care, it’s advisable to investigate potential healthcare funding options first, as this can significantly contribute to overall care expenses. Depending on your financial situation, you might also qualify for social care funding. Whether you’re a child or an adult living with a disability, a long-term illness, or an older person seeking assistance with daily tasks to maintain independence, government funding and local authority support may be available.
Unfortunately, many families do not qualify for any financial assistance and must finance their own care, known as private pay or self-funding care. In the following sections, we’ll explore various options to help you finance the care and support you need, both now and in the future.
Determining Your Contribution to Care Costs
In England, the threshold at which you are responsible for funding your own care is £23,250. If your capital exceeds this amount or if your weekly income surpasses your care costs, you’ll be required to contribute to some or all of your care expenses.
To assess your eligibility for healthcare funding, you’ll undergo a Financial Assessment, also known as a means test, to determine whether the local council will assist with your care costs. If you’re self-funding care in your own home, the value of your home is excluded from this financial assessment.
This assessment evaluates your financial means to determine whether the council will cover a portion of your care costs or if you’ll need to self-fund. If you qualify for support, it will be provided through direct payments as part of your personal budget.
Should your income decrease or your capital fall below £23,250 at any point, you may become eligible for financial assistance from the council. A new financial assessment will be conducted to determine your eligibility. Contacting your local council at least 3 months before any anticipated changes in your finances may allow you to claim reimbursements.
An immediate care fees annuity, often referred to as a care fees annuity, is an insurance policy designed to provide a regular income to cover your care fees. In exchange for an upfront lump-sum investment, these annuities offer guaranteed income for life, ensuring your care costs are met. You can use an annuity to cover the entirety of your care expenses or just a portion, complementing other resources such as income or savings. The income from this plan is typically tax-free and is usually paid directly to your care provider. Additionally, the income can be adjusted to keep pace with inflation or increase by a set amount each year, safeguarding against future rises in your care costs.
The cost of a care fees annuity depends on the amount of income required to cover your care costs and the insurance company’s assessment of your likely duration of need, ensuring lifelong coverage.
However, care fees annuities are not suitable if you do not require immediate care, anticipate only short-term care, or seek respite care.
To find the best policy to meet your unique needs, consider seeking guidance and advice from specialist care fees advisors. Organizations like the Society of Later Life Advisors (SOLLA) consist of independent specialists who can assist you in making informed decisions regarding long-term care financing. The UK Care Guide is another valuable resource to aid you in making the right choice.
Financing an Immediate Needs Annuity
If you’ve determined that an immediate needs annuity is the right choice for financing your care costs but lack the necessary capital, consider exploring these options:
If you’ve paid off your mortgage or are close to doing so, you can use equity release to fund your care fees or purchase a care fees annuity. Equity release allows you to access a portion of your home’s value without having to move. It’s a suitable option for many families seeking to finance in-home care. The amount you can release depends on factors such as your age, health, home value, and chosen equity release plan.
A common equity release scheme used for long-term care financing is the lifetime mortgage, which is essentially a loan secured against your property. You can receive the loan as a lump sum or over a specified period. Interest is charged on the loan, and you can either make regular interest payments or allow it to accrue. Upon your passing or when you move, the proceeds from the property sale are used to repay the loan and any accrued interest, with the remaining amount going to your beneficiaries.
The Money Advice Service offers detailed information on the various equity release schemes available for self-funding your care.
Another option is to downsize and sell your current home to release capital for purchasing a care fees annuity. This approach may also provide an opportunity to relocate to a more suitable residence that caters to your current and future care needs or allows you to be closer to family and loved ones. When considering downsizing, take into account the space you’ll need in case your care requirements increase, such as the need for live-in care, which may necessitate accommodation for a live-in carer.
Equity Release vs. Downsizing
Choosing between equity release and downsizing requires careful consideration of your current needs and future plans.
Equity release schemes typically allow you to access more capital compared to downsizing your property. However, if you require care for an extended period, the costs associated with the loan and interest may consume all the proceeds from the property sale. This could impact the value of your estate and the amount received by your beneficiaries. Downsizing, on the other hand, is a more cost-effective option that enables you to preserve your estate for your family and beneficiaries
Feel free to reach out to our approachable care specialists for a conversation about self-funding in-home care, or simply locate a nearby office. Our commitment is to offer unbiased guidance and counsel, ensuring you make the best decision for both you and your family.
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