Home Care: How Do I Pay for It?
There are various ways of paying for home care and dementia care, but understanding the various options of care provision can seem very daunting at first. Many people who need to arrange care at home for themselves or for a loved one worry considerably about the financial impact of funding elderly care. The two main ways of funding elderly care or dementia care are private funding and local authority funding.
Private funding for care can be through savings, pensions or loans. These are the most usual ways to fund care, whether it is residential or in-home care. Care fees can be paid with a care recipient’s pensions and savings.
If additional funds are needed, some people take out a loan from a bank or building society. This can be helpful for financing private care as a short-term measure whilst you research the options for funding care in the long term.
Care can be funded by releasing some of the equity in the person’s home or other property they own. This is an efficient way of paying for elderly care, particularly care at home since the person is able to continue living in the property.
Another advantage is that this is a tax-free method of raising the funds you need to finance private live-in care. The two main types of equity release are a reversion plan and a lifetime mortgage.
A Reversion Plan
In this method of equity release, all or some of a person’s home is sold to a reversion company for a lump sum. The person who sells the home keeps the right to remain independent living in the property rent free. The reversion company benefits from the proceeds of the sale when the property is eventually sold, including any increased value the property has gained since the original purchase.
The reversion company will usually pay between thirty and sixty percent of the value of the property. The actual amount offered is dependent on certain conditions, including the age, health and sex of the seller of the property. This may seem like a relatively small percentage of the property’s value, but this is because there is often likely to be a long wait until the reversion company receives a return on their investment.
A Lifetime Mortgage
In this method, the home owner receives a loan that is based on the value of the property. This loan is repaid when the house is sold after the owner has died. If the property value when it is sold is greater than the amount outstanding on the loan, the home owner keeps the surplus.
Unless the provider has offered a no negative equity guarantee, the home owner’s living beneficiaries would be responsible for repaying the loan in the event of the value of the property failing to meet the total repayment amount due. If a no negative equity guarantee has been arranged, irrespective of the sale value of the home, the outstanding balance is cleared.
The two key advantages of lifetime mortgages are that the equity you receive is tax-free, and if the home is sold for more than the outstanding amount of the loan, family beneficiaries will receive the remaining sum.
It is important to seek professional advice before going ahead with equity release so that your individual situation is taken into account and you find the best deal. The Safe Home Income Planning Code of Conduct regulates the equity release market, ensuring that the standards are fair.
A Care Annuity
This is a form of insurance providing a guaranteed income for life. Other names for care annuities are immediate need payment plans, immediate care plans and immediate needs annuities. A lump sum is invested to fund care in the future. It is not suitable for everyone, and it is advisable to discuss options with an expert before taking out a care annuity.
One advantage of care annuities is the fact that they can be index linked. This means that payments will rise in line with inflation. It is possible to arrange capital protection so that a percentage of the fee paid can be repaid if the person dies early. Some people find it beneficial to reduce their exposure to inheritance tax by reducing the value of their estate.
This method of funding care is effectively a bet based on how long the elderly care will be needed. If a person thinks their need for care may only be temporary, it is not a good solution. The plan cannot be cancelled in the event of a person no longer needing care, whether this is due to recovery or death.
Local Authority Funding
Most people are entitled to a free assessment of their needs by their local social services department. Many people are also eligible for assistance from their local authority to help them to pay for residential or in-home care. The assessment should determine whether the person has a need for care, whether this is simply a caregiver visiting to assist with tasks once a day or dementia care that is needed for longer periods.
A means test will be carried out to assess whether you are able to fund your own care or whether the local authority will contribute. People whose assets are worth less than £23,250 are entitled to support which may be paid directly to the care provider or may be given to the care recipient as a direct payment. Requesting and being awarded direct payments means that you or your family can choose to put it towards the care you want, such as 24/7 care provided by a live-in carer.
People who need Alzheimer’s care or dementia care can often benefit considerably from live-in care that enables them to remain in their own home.
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