Care funding options

If you find yourself having to fund the cost of your own long term care, knowing your options and careful planning can ensure you make an informed decision regarding your finances.

There are a variety of strategies to help you pay for your long term care. These might include family assistance, renting or borrowing options as well as drawing money from your savings.

Other solutions available to you are covered below:


Using investments to create an income flow 


Few people will be able to pay for long term care purely out of their pension and other regular income, but as a first step it is a good exercise to see if you could arrange your assets to produce a steady stream of income.

If you are going into care and live alone, then your own property could be rented out. The rental income could help pay the costs of care and the property could still be passed on to your beneficiaries. If the property is sold, the money from the sale could be invested in assets such as government bonds, shares, unit and investment trusts, ISAs or investment bonds which pay out regular returns to help pay for care. You may wish to consult a specialist financial adviser to help decide on suitable investments.

Advantages

    • You may be able to retain your capital and only use the returns it generates to pay for care, allowing the lump sum to be saved and passed on to children.
    • You may be able to retain your property and pass it on to the next generation.

Disadvantages

    • You cannot predict the returns from investments, so the income produced may not cover the cost of care fees
    • You have to pay income tax on pay-outs from most investments. 
    • If you live for an extended period there is a real possibility there will be insufficient capital to continue generating income to fund your care. 


Using equity release to free up funds from your property


Equity release allows you to release some of the value of your home whilst you continue to live there for as long as you need or want to. You can use the money for almost anything you like including funding care at home.

Money can be released as a large, single payment or you arrange to receive regular payments. You can use the money to help pay your care bills or use it to buy a care plan which will pay out a regular and guaranteed amount to your care provider for as long as you live to help cover the care fees.

There are two main types of equity release schemes available: lifetime mortgages and home reversions

Lifetime mortgage (mostly available to homeowners over 55)

    • With a lifetime mortgage, you take out a loan against your property.
    • No regular repayments of interest or the borrowed capital are required. Interest is added to the loan which is repaid on the eventual sale of the property on death, or when a surviving partner moves into care and the home is no longer needed.

Home reversion (mostly available to UK homeowners over 65)

    • With a home reversion scheme, some or all of the property is sold to the home reversion provider in return for a cash lump sum together with a rent-free lifetime lease, ensuring that you can stay in your home for life

You will need to seek specialist financial advice  to help you decide if equity release is right for you. Advisers can be found at Equity Release Council. Providers that are members of the Equity Release Council have a strict code of conduct and safeguards for your protection.

Advantages

    • Equity release can create a lump sum or income to help cover your care fees
    • No regular payments of interest or capital are required
    • You and/or your spouse can normally still live in the property, rent-free, for life
    • There is no risk of negative equity, so you’ll never owe more than the value of your home

Disadvantages

    • You will not be able to release the full value of your property
    • You will not be able to pass on the full value of your property to your beneficiaries
    • Unless you use the money to purchase a long term care plan, money could run out leaving you to find alternative ways of paying for care

Read more about using your property to release funds


Buying a care plan


You could consider securing a guaranteed income with a care plan, also known as a long term care annuity or immediate needs annuity. With these, you use a lump sum to buy an insurance policy that provides a regular income to help fund your care fees for as long as you live. There are two options when it comes to care plans, the main difference is whether you need care funding now (immediate funding) or in the future (deferred funding).

Advantages

    • These plans guarantee to pay out an income which can be used to help fund care fees for as long as you live
    • If the plan pays out directly to the care home, then the payments are free from income tax (under current HMRC rules)
    • Your plan can be set up to increase each year at affixed level or in line with inflation
    • The cost is also deductible from the estate for Inheritance Tax purposes 

Disadvantages

    • In order to pay out money to help cover care fees for life, these plans require a lump sum payment
    • If the person in care dies early into the plan, the estate will receive less than the purchase price. When you set up your care plan you can choose a capital protection option to help offset this risk