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Financial Planning: How to Fund Long-Term Care

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Life expectancy is increasing and uncertainty about future government funding for social care continues to grow. The cost of social care and the strain that comes with paying for our own care or providing support to a family member is one of the biggest challenges facing society today.

Depending on circumstances, there is no guarantee that the NHS will fund long-term care, especially if the care required is social care, as opposed to healthcare required for a medical condition. And even if you do qualify for funding, the amount you receive may not be enough to cover care costs completely.

Research published in The Guardian earlier this year suggests that the typical person entering residential care will face a total bill of £50,000-£93,000 depending on location. According to research by The Centre for the Modern Family, a think tank set up by Scottish Widows, the UK is facing a £7 billion annual deficit in elderly care funding.

In a recent report by the think tank, The Cost of Care, statistics on the financial impact of elderly care funding suggest the nation is facing a care funding crisis. In the UK, adults estimate that weekly residential care would cost £549 per week, when in actual fact it currently costs an average of £866 each week. The report also highlights that as many as 1 in 4 people have no idea how they will fund care costs for themselves or a relative. And 49 per cent admit they avoid thinking about future care costs. As many as 42 per cent of people have £2,000 or less in savings.

The implications of care funding on families

Reliance on family to fund care costs can have a significant impact on family relationships. The practical and financial strain of supporting a relative in care is huge. According to The Centre for the Modern Family, 80 per cent of those providing care for a relative say it has had an effect on them. Research shows that the number of people in care by 2035 will almost double. Relying on relatives and the state to fund care could put families in serious financial difficulty.

Planning ahead: how to pay for the cost of care

There are many options for funding long-term care, but they can often be complicated to understand. It’s a really good idea to seek advice from a reputable independent financial advisor, such as Reeves Financial. Their experienced advisers will be able to talk through your specific circumstances and explain the most viable options open to you, including how to protect your existing assets.

Funding possibilities when it comes to long-term care, either for yourself, or for a relative, include:

 

  • Using investments to create income

 

If you are fortunate enough to have a significant amount of savings, you could invest that money with the aim of using the income the investment produces to pay for the future costs of care. It may be a way of retaining your capital to pass on to children and still pay for your own care.

Investing money can be a risky approach. Investment types include stocks and shares ISAs, hedge funds, venture capital trusts, individual shares and equities, tracker funds, and investment bonds. It’s important to structure your investment carefully, and it’s a good idea to enlist the support of a specialist financial advisor for this purpose.

 

  • Downsizing your property to release funds

 

Selling your existing home and buying a less expensive one could be a way to free up a lump sum to pay for care costs. It may be that sheltered housing or extra care housing would best cater for your needs if some level of care is imminent. Downsizing is a more cost-effective solution than equity release, but it probably won’t raise as much money.

 

  • Free up funds from your property with equity release

 

There are various equity release schemes which allow you to use some of the money that is tied up in your home, without having to move out. A lifetime mortgage is one form of equity release that can be used to pay for long-term care, but only if you’re looking to stay in your property, so if the money required for care is for yourself it will need to be a care package at home.

The other main type of equity release is a home reversion plan. With a home reversion plan you sell all or part of your property in exchange for a lump sum, a regular income, or both. The amount you receive is less than the market value of your home. Again, you can only use this method to fund your own care if you stay on in your home. Home reversion plans are high-risk products, so it’s worth seeking specialist financial advice.

 

  • Buy into a care plan

 

Care annuities or care fee annuities are insurance policies paid for by a lump sum, which then give you a lifetime income to pay for long-term care. The difference between the best and worst annuity rates are easily 30 per cent, so specialist advice is highly recommended to get the best deal. There are two types of Long Term Care Annuity:

  • An Immediate Needs Care Annuity for individuals already in care
  • A Deferred Care Annuity for those reviewing and planning for care provision in the future

 

  • Claim on your health insurance policy

 

If you have an existing health insurance policy, it’s worth checking what cover you have as some aspects of your care may be covered by your policy.

When you are planning the funding of long term care for either yourself or a relative, always seek proper financial advice.

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