Potential for Capping the Cost of Care - Understanding Immediate Need Care Fee Payment Plans

Immediate Need Care Fee Payment Plans (ICPs) can provide guaranteed monthly payments to cover all, or part, of nursing home, residential care home or home care costs. As their name implies, these plans are purchased at the time care is needed to help fund the cost.

Being designed for impaired lives they offer a higher level of guaranteed income for as long as care is needed and greater tax advantages than can usually be provided by traditional investments or annuities. This will vary according to individual circumstances and tax rules are subject to change.
Their purchase often requires only part of one's capital or property proceeds to be used to meet care costs allowing the remainder to be invested for growth and provide for an inheritance.
In principle, for a capital sum, these plans provide increasing payments for as long as a person needs care covering the shortfall at the outset between income and care costs.
Their price is subject to medical underwriting and, unlike usual life or health insurance, the more impaired the life the lower the cost.
Plans can provide the flexibility suited to the client's needs including a predetermined chosen rate of escalating benefits and the ability to set an escalation date to fit in with the care provider's fee increase date.
They offer the reassuring potential that care costs can be met regardless of any changes to the economy, interest rates or stock markets.

The pricing of these plans is principally determined by underwriting considerations from the assessment of both activities of daily living and the various other disabilities that could cause shortened life expectancy, e.g strokes, cancer, dementia, Parkinson's or Alzheimer's disease, etc. From the information submitted on a detailed health questionnaire supplemented by further underwriting information, and usually a medical report from the GP, the insurer will make a judgement on life expectancy. In simple terms, the poorer the assessment of life expectancy, the better the terms.

At the moment there are only a few providers of ICPs and their pricing can vary substantially, depending on the company chosen and their actuarial interpretation of life impairment (see table below). NHFA Care Fees Advice uses a common application form submitted to all companies in order to obtain the best possible priced plan.

To find out more complete a Care Fees Advice Application Form

No costs are incurred on application - all the administration expenses in processing the application and medical fees are presently borne by the insurer.

Standard plans do not normally provide for return of capital to the Estate on death and, although some degree of capital protection can be purchased for extra cost the sensitivity of judging whether ICPs are suitable cannot be over estimated. Families must consider the possible short-term loss of capital against the peace-of-mind factor and longer-term benefits should their relatives survive in care.

Tax Considerations

A concession has been agreed with HM Revenue & Customs that payments made direct to a recognised care provider can be free of tax. This concession further enhances the income these plans can deliver but ceases to be applicable if the care recipient receives the payments direct.

These types of plans can also have significant inheritance tax savings. Assuming that the estate on death will exceed the Inheritance Tax threshold the effective cost of the plan to the beneficiaries will be 40% less than the purchase price. This, therefore, can significantly reduce the break-even point at which the estate will benefit from this type of arrangement.

Summary

Used correctly, these plans can provide an excellent solution to the problem of funding care costs whilst preserving capital. Although the ultimate financial benefit to the person in care would depend upon how long they live, the security these plans offer gives the reassurance and peace of mind that, through the provision of a rising level of income, care costs can potentially be capped and met for life. Consequently the capital remaining after the purchase of the plan can be released with the principle objective of achieving capital growth for the benefit of bequests under the Will.

Fully understanding how each plan works and their suitability to meet existing and future care costs is essential. Before recommending such plans NHFA Advisers will assess individual cases taking into account life expectancy, entitlement to DWP benefits, local authority and health authority funding responsibilities, guidance on relevant legal and tax matters and only then, where it would appear to be appropriate consider them as a suitable option.

To find out more complete a Care Fees Advice Application Form

Sample Immediate Need Care Plan Prices
Gender (M or F)	F	M
Date of Birth	19/5/1938	8/5/1920
Plan Income PCM (£) increasing at 5% pa	470	813
Health Impairment	Alzheimer’s	Stroke
Activities of Daily Living Failures (Scale of 1 to 4 where 1 = independant and 4 = Major assistance required)
Dressing	3	4
Bathing	4	4
Feeding	2	2
Toileting	4	4
Mobility	1	4
Cognitive	Yes	No
Company Offers - Income escalating @ 5% PA compound (£)
AXA PPP	69,831	37,442
PA	61,113	29,490
These figures will vary according to individual circumstances. Source: Insurance company quotes, compiled by NHFA Jan 2010.