Long term care plans : Pre-funded care plans

You buy a Pre-funded Care Plan when you are concerned that sometime in the future you may need care, at home or in a home. It starts to pay out when you meet the insurer's criteria in terms of inability to perform certain activities of daily living. The activities are predefined, and if you do not meet the criteria, but still need care, will not be paid.

 

A Pre-funded Care Plan pays out until you no longer need care, which is usually when you die.

 

Some have a restriction e.g. they may only pay out for 3 years.

 

If you just fancy living in a residential home, but do not need care, this product is not available to you.

 

You buy this in advance in case you need care in the future, not now.

 

Several insurers who had products in this area, exited the market, leaving a very small number of products to choose from (see the produt list on the right).

 

You can buy at any age, but some insurers have a minimum age of 40 or 50 .In reality this rarely matters, as few people under 55 buy this cover.

 

You should bear in mind that if one in four of us will need a care home, three in four won’t. So investing heaviliy on insurance premiums should be a considered decision.

 

Proper pre-funded care policies pay an income or pay fees. This is normally tax free

 

Although most have vanished, there are policies which are labelled as pre-funded, but do not pay fees or an income, merely a cash sum at the end of the policy period, or when you need care. These are known as Long Term Care Bonds.

 

Some are bought with a lump sum premium; others need an annual or monthly premium.

 

The premium is usually regularly reviewable, often every five years, at which time the insurer can increase premiums. Even if you bought with a lump sum they may want more money.

 

If you die or get to the end of the policy period without needing care, you or your family do not get any money back unless there is a death benefit.

 

If you need care earlier than expected, the insurer just pays up-unless there is an age restriction e.g. will only pay out if you are over 65 when you claim.

 

If you die early without needing care, some polices will pay a death benefit.

 

Some policies are on a level benefit basis, some are index linked, and some offer you the option of index linking it. Index linking and regular reviews of adequacy of benefits, are essential for this type of cover.

 

The income may be paid to you, your family, or direct to a care home.

 

A plan does not pay out if you need a rest or temporary care in a home, only if you need permanent care.

 

There are exclusions. Typical ones are that the policy will not pay out of the need for care is due to: