You can use any lump sum you have available to buy a long term care plan from a specialist provider. In turn the company which provides the plan pays out as regular income to help fund your care fees for as long as it is needed.
Immediate care plan
If you need to go into care now or in the near future, you may wish to consider an immediate care plan. With this type of care funding product, payments from the plan to you or your care provider can start immediately and continue for the rest of your life. If you pass away soon after the care plan is taken out, the income payments you receive are likely to be less than you invested. The level of payment from the plan depends on a number of factors, namely how long you are expected to live and the level of interest rates in the economy.
Immediate care plans can include a money-back guarantee, paying back some of the lump sum used to buy the plan in the event of death within the first six months. Further capital protection of your lump sum can be provided for an additional payment when the policy is taken out.
How do care plans work?
A care plan will guarantee a specific level of income to help pay for care fees for the rest of your life. The cost will depend on:
- The health of the individual - cost reduces depending on the severity of the condition/illness
- The age of the individual - the older the individual, the cheaper the plan although this will be taken into consideration with their health status
- The amount of income needed for the care home fees
The average cost of a long term care annuity is about £120,000 and while this may appear to be on the high side, when set against average annual nursing care home fees of £39,000 this represents just over two and a half years’ worth of fees.
Speak to a specialist care fees adviser
for more specific information on costs and suitability of long term care plans.
Care plan features
Long term care plans can come with additional features which may suit your particular situation. These include:
- Index-linking – some plans may offer to link the level of regular payments they make to you or the care home to the rate of inflation so they keep pace with the increasing cost of living
- Escalation – you may be able to request for the payments the care plan provider makes to increase by a fixed amount each year, say 1-8% or by Retail Price Index, to help cover any future rises in care costs
- Money-back guarantee – this guarantee ensures that a percentage of the lump sum originally paid to the care plan provider will be returned if you die soon after buying the plan, typically within six months
- Capital protection – an additional element can be arranged to return some of the original lump sum you paid to the care plan provider to your estate or beneficiaries in the event of death
NB both money back guarantee and capital protection are reduced over time by the regular income paid to your care provider.
Tax benefits of long term care plans
- Income tax – if the income paid out by the long term care plan goes directly to a Care Quality Commission (CQC) registered care provider, there is no income tax to pay on it. You can opt to receive these payments yourself, for instance if you no longer need residential care, but income tax will then be deducted from the payments
- Inheritance tax – By using your money to buy a long term care plan you will be reducing the value of your estate which may help with inheritance tax planning; this can be a complicated area for which you should seek financial advice
Please note that all statements with respect to taxation in this website are Partnership's understanding of current taxation legislation. The rules governing taxation are subject to review and can change. Tax will depend on individual circumstances.