An insurance policy for the elderly who fear being forced to go into care has drawn fire from critical illness experts, but the insurer defends it.
Typically, the more the “critical illness great and good” attack a new idea, the better it is. Insurers have struggled to sell the concept, so get very annoyed when anyone comes out with something that is different from the industry approved products that most offer. When insurers attack an idea on long- term care, it is worth remembering that most of them have never offered a long- term care product, or were among those jumping on the bandwagon years ago, and pulling out when they could not make quick profits.
Experts (an expert is one who knows more and more about less and less) have raised concerns about a new insurance product being marketed to the elderly that claims to protect against developing a medical condition that could force them into a care home.
Designed to tackle the needs of elderly people who suddenly find they can no longer look after themselves, American owned insurer Lincoln Financial Group has launched a product that gives cash lump sums to pay for care needs.
The product, called Elderly Care cover, pays a tax-free lump sum on the diagnosis of Alzheimer's, Parkinson's, motor neurone disease or illness causing permanent inability to perform certain activities including eating and dressing.
The plan is essentially a critical illness cover plan for older people. Because critical illness insurance usually covers a wide range of conditions, including illnesses such as heart attack that do not have an effect on your ability to look after yourself, they can be prohibitively expensive for older people to take out.
Elderly Care cover, on the other hand, is limited to those conditions that could force you into a home, which is why it is much cheaper. For a premium of £51 a month a 60-year-old male non-smoker can get cover of £75,000 in the event he falls victim to one of the conditions covered, although anybody up to age 65 can take out a policy. Premiums start at £20 a month.
Given that you may hold the policy for several decades it makes sense to take the inflation protection option, which upgrades both your premium and the benefit payment with retail price index inflation year by year.
If you die without making a claim your estate will receive a lump sum, which is worked out on the basis of your age at death and returns on investment markets. This is because your premiums are invested on your behalf into a fund that is exposed to the stock market.
Everyone agrees that families need to do more to prepare for the unexpected decline in health of an elderly relative, but some industry experts are unconvinced by what the Lincoln product has to offer.
One of the downsides of the Lincoln product is that premiums are reviewable, which means the cost of your premiums could be increased unilaterally after 10 years up to your 70th birthday and every five years thereafter. Given that you are not likely to go into care until well after this age, you may find the new premiums unaffordable. But many life and critical illness policies are equally reviewable, sometimes after only five years.
Critics argue that the product needs to be flexible but isn't - it has a very low maximum age - you have to be under 66 to take out a plan - and a very tight set of claim criteria. They argue the activities of daily living criteria require complete failure of three activities, but many people need care with the loss of one or two. Alzheimer's disease is covered but not other forms of dementia that can be equally debilitating.
For those who are happy to take the chance that their care needs will fall into the Lincoln claim criteria then this is worth considering as the lump sum could indeed be useful for purchasing an immediate-needs annuity.
The Lincoln plan does offer the possibility of giving elderly people the cash they need either to go into the home they want, or more importantly the opportunity to avoid going into a home altogether. For many people who have no relatives living near them the only solution when they become incapacitated is to sell up the family home and move straight into care. This new plan gives people the breathing space to look at the alternatives, such as adapting the existing home or bringing nursing care into the home For many homeowners, the only way to fund care is to sell up as anyone with assets of more than £21,500 has to pay for themselves. While the value of your home is excluded from the £21,500 figure for the first three months of care, thereafter the local authority will put a charge on your property.
Ian Noble, head of life sales and product development at Lincoln, defends the product. He says that premiums will go up only if the company's claims experience and expenses go up. "The current review process takes into account actual experience and projected future experience in respect of claims, administration expenses and fund performance."
Noble also counters that if the dementia was so bad that it meant the policyholder was incapable of performing three out of five specified daily functions then they would be covered by the plan anyway.
Lincoln is secretly delighted by the criticism. It gives them publicity and shows the more the critical illness/ long term care insurance mafia complain about a product, the more innovative it is.
The nit picking is a bit like complaining that the latest BMW is fabulous, but why doesn’t it come in orange or with a snowplough for winter.
Long Term care: 16/11/2007