LONG term nursing care is not an issue that gets much attention from young, healthy people. However, as more people now survive into old age the matter of financing full time nursing and medical care is another factor to be built into provision for the elderly.
Studies conducted in Britain band the US suggest that about a third of people over age 65 will require nursing home care at some stage in their life and that the average length of stay is about three years. Despite the provision of Medicaid and Medicare for older people in the US, over 42 per cent of all nursing home costs are met from private means. Here and in Britain, state benefits are means tested. In Ireland the income and assets of an elderly person's children are assessed as part of the means testing process through which an elderly person's ability to pay for care is estimated.
Financial advisers report an increasing number of enquiries from middle aged clients about how they can not only ensure that their pension provision is adequate, but also what sort of provision they should make to cover illness or incapacity. "It only takes one ageing parent to develop Alzheimer's disease to set the children wondering if they will also end up that way," one adviser told us.
Dementia of any kind can often result in the sufferer being institutionalised, but physical conditions, such as diabetes, heart problems, a stroke, arthritis, a broken hip, loss of sight, can also force a once independent person to seek care assistance.
If you can afford to pay in the region of £18,000 a year for a nursing home (i.e. £350 per week) out of pension income, investments or assets, then you do not need to worry about any further funding for long term care. Money like this might be made up from a combination of an occupational pension, State benefits, returns from savings/shares and perhaps from the sale of a private residence. Capital may very well have to be drawn down from the lump sum realised by, say, the sale of the family home to meet the total cost, but depending on the person's age, there may be very little risk of completely running out of the capital. Registered nursing home care is also fully tax deductible.
For many, there simply may not be sufficient income to meet an £18,000 nursing home bill. The biggest obstacle for one partner entering a home is how the other person could cope financially if the joint income plus assets like shares, the family home, etc. are drawn down for the care of the other.
The solutions are expensive, but less so if funding provisions are made early, or if a family business is utilised to meet the costs of any long term care.
Owen Morton of Moneywise Financial Planning, is an independent financial adviser who has recently become a member of a British based association called IFA Care which was set up to establish standards of financial advice for clients specifically in need of guidance on provision for care expenses. Members are already authorised under British regulations to give general in vestment advice but have set up a separate code of conduct for their organisation because of the sensitivity of the nature of this kind of specialist investment advice (which can sometimes affect not just the client, but their family as well).
It doesn't come as any surprise to him that many people ignore the idea of becoming old and infirm "most people don't give adequate thought to their pension provisions," says Mr Morton". But when the issue is finally addressed, the person may believe it is too late to afford the kind of investment premiums needed to fund any of the growing number of long care insurance policies now available on the Irish market.
"There is no escaping that funding in advance, however prudent, is a costly business," he says. "The question is, is it more or less expensive than a pay as you go method, in which you gradually deplete all your assets to pay for care?"
It doesn't come as any surprise to him that many people ignore the idea of becoming old and infirm "most people don't give adequate thought to their pension provisions," says Mr Morton".
The problem with many traditional life and even critical illness policies he says is that "the more of this we buy, the more we are priced out of buying replacement cover because the older we get, the greater the likelihood of a claim." Traditional whole of life policies, complete with their claims of long term investment value, have a depressing tendency to bomb out because premiums do not increase in value with both cage and health risks and are therefore valueless long before add age.
The solution, says Mr Morton, is to buy a what is known as a long term care policy offered by companies such as Canada Life, Friends Provident, Lifetime, Norwich Union and Scottish Provident. "Policies like these require high funding levels because they are designed to pay out the agreed cover at death, or to produce the same size tax free lump sum in the event of what is known as loss of independent existence. This is defined as being beyond age 60, or in some cases, 65, and being unable to perform, without assistance from another person, three or more activities of daily living such as washing, dressing, feeling, toileting and transferring.
He gives an example of a couple aged 50 and 48 who are seeking cover of £100,000 and £50,000 cover respectively to last their lifetime. The monthly premium is approximately £275.00 per month each with only a small premium variation between the five above mentioned companies, all of which are quoting the standard industry net growth rate of seven per cent per annum for the underlying investment fund. If growth rates are lower, the policyholder will need to pay a higher premium. A traditional whole of life policy will be cheaper by about £50 a month each, he explains, but will last "for a definite period of only 20 years, with no payout and no underlying reserve or cash in value in the event of coming through the period of risk unscathed.
Moneywise itself has produced a branded long term care policy called the Moneywise Provider Plan in association with Friends Provident which, claims Mr Morton, goes a few steps further by creating a lifestyle fund a mixture of insurance and investment planning. Not only is a cash fund available in the event of premature death and loss of independent existence but also should you suffer a serious or critical illness, death in old age (with benefits being paid either to family survivors or to the family company which can then buy back its own shares and therefore transfer cash to the survivor) and finally in the event of needing a cash fund in old age to meet the cost of voluntary nursing home care.
This policy, he says is ideally suited as part of a wider scheme to protect the continuity of a family business and to preserve family wealth "Properly orchestrated, the business can pay the policy premiums as part of the wider scheme of integrated pension, insurance and succession planning. In all of this it is the financial security of the owner and spouse for their lifetimes which commands priority, and the financing of long term care is a crucial element of this agenda."
