There’s no doubt that the process of deciding which care solution is best for your needs can seem daunting. At the heart of this often lie concerns about the financial impact that choosing a care option will have on the individual being cared for, and their loved ones.
Elder deals with this issue on behalf of those for whom we care every day. We know all the questions that are commonly asked, and our care support team are available to speak with you 7 days a week on 0333 241 3141.
To help you to understand your options, our finance director has put together this essential guide to paying for care.
Assessing all the choices around funding long-term care can seem like an overwhelming task for most people. However, it doesn’t need to be, as there are really only two main ways to fund care:
- Private funding for care
- State or local authority funding for care
In this guide, we’ll take you through the important elements of each, and help you to fully understand the options which are open to you.
Private funding for care
Paying for care with pensions, savings or loans
One of the most common methods to pay for short-term care is with a pension and savings. For those who require additional funds, one option is a bank or building society loan.
“A bank or building society loan can be very useful to finance care in the short term to give you time to fully consider all the options for a longer term solution.”
Paying for care through equity release
Releasing the equity held on a home, or other owned property, can be a very efficient method to pay for live-in care. It allows individuals to to access a portion of the value held in their property, whilst continuing to live there, and best of all it’s tax free. There are two main types of equity release:
- A reversion plan
- A lifetime mortgage
Either all, or some of a home is sold to a reversion company for a lump sum, but thereafter, the seller retains the right to live there rent free. The reversion company is later recompensed when the home is sold, which includes any added value subsequent to the reversion company’s purchase.
The percentage of the value of the home paid by the reversion company is typically somewhere between 30% and 60% of its current value, depending on conditions such as the age, sex and health of the seller. The reason why sellers don’t receive more is that the reversion company will often have to wait a very long time to gain a return on their investment.
A loan is given to a property owner based on the value of their house, and later repaid to the bank following the sale of the property upon the death of the owner. If the value of a property house when sold is greater than the amount to repay on the loan, the owner retains the surplus.
If, however, the value of your house does not meet the total repayment amount of the loan, your remaining living beneficiaries must cover the cost. This being said, many providers offer a no-negative-equity guarantee. This means that even if the sale total of your house is lower than the outstanding balance on the loan, the balance is wiped.
There are many advantages of a lifetime mortgage, but the two greatest are often cited as being:
- The equity released on your home is tax free
- If you sell your house above the outstanding value of the loan, family can benefit from the subsequent inheritance
The equity release market is heavily regulated within the Safe Home Income Planning Code of Conduct established to ensure that the industry is monitored and fair standards are maintained.
“It’s still very important to talk through your particular situation with an expert. Call Elder’s care support team on 0333 241 3141 to discuss your options. We can assist you ourselves, or recommend a trustworthy Independent Financial Advisor who will be able to advise which companies are part of the Safe Home Income scheme, and how to get the best deal.”
Paying for care with a care annuity
A care annuity is a type of insurance policy that provides a guaranteed income for life to pay for care costs in exchange for an upfront lump sum investment.
They can also be known as:
- Immediate need care fee payment plans
- Immediate care plans
- Immediate needs annuities
There are three key reasons why a care annuity is an attractive option for many individuals:
- It can be index linked so that payments rise in line with inflation
- Capital protection can be arranged in the event of early death, which allows a percentage of the upfront fee to be repaid by the annuity provider
- Making a lump sum payment, individuals reduce the value of their estate and therefore the exposure to inheritance tax
A care annuity is a bet based on the length of time for which care will be required. It is definitely not the best solution for those who think their care requirement may only be temporary. This is because it is not possible to cancel the plan, and get a portion of the lump sum back should care no longer be needed, due to recovery, or death.
“Be aware that taking out a care annuity is an important decision and requires careful advice and planning. Call Elder’s expert care support team now on 0333 241 3141 to discuss which care payment option is best for you.”
Local authority funding for care
Many people in the UK are eligible for support from their local authority to help pay for care.
Without this assistance a large proportion of elderly people would simply not receive the care they need.
However, there are also many people that don’t receive the financial support they are entitled to, simply because they are unaware that it is available to them. It is vitally important that all the local authority funding options are understood when assessing how to pay for care.
- The first step to take in receiving government funding for care is to demonstrate that there is a requirement for care. Contact social services who will arrange for a care assessment to take place free of charge.
- The next step is to prove that you are unable to pay for the care for yourself. This is known as a means test and the purpose of the test is to find out how much financial support the government owes you. The level of support you are due depends on the value of your income and assets. If your assets total is worth less than £23,250 you are entitled to support from your local authority. Call our expert care support team on 0333 241 3141 to learn how to find out the total amount you may be entitled to.
- Locally authority funding can be paid directly to care providers, but you also have a right to ask for a direct payment instead of having care arranged by the local council. After the care assessment, the local council will calculate how much care will cost and, once you have chosen appropriate arrangements, will begin to make regular payments.
I hope that you have found this guide useful, and remember, if you have any questions at all about how to pay for care, call one of our friendly Care Advisors on 0333 241 3141.