This piece first appeared in The Daily Telegraph on 29 July 2000
The text here may not be identical to the published text

Most people who go into a residential care or nursing home have no insurance and, if they leave behind an empty home, they will usually have to sell it to pay the fees themselves. And at £400 or more a week, that can drain away even a large sum very quickly. But there is an alternative to putting the money in the bank and hoping it will last.

Several insurers now offer guaranteed payments for life on good terms to people who are ill enough to need residential or nursing home care. These so-called immediate care plans are simply an annuity – an annual payment guaranteed for life in exchange for a lump-sum. And because people going into homes have an illness or disability, their life expectancy is shortened and they can usually get very good annuity rates. New rules that began last March mean that if the annuity is paid direct to the home, there is no deduction of tax, making them even more valuable. So the proceeds of a house or flat will be enough in many cases to buy an annuity which will pay the fees for life, sometimes even with a built in annual rise to cover inflation and often with some capital left over.

Although the total number of policies in existence is around 1000 – and there are half a million older people in homes – the insurance companies believe it is growing business where the home is left empty and can be sold.

Five companies provide them: the health care groups Bupa and PPP; the Pension Annuity Friendly Society; and the insurers Norwich Union and Age Concern Financial Partnerships (which sells products of the CGU). Its business manager Chris Ellicott explains how the deal is worked out.

"First you look at the cost of the nursing home, then at what the person has coming in from a pension, attendance allowance, and other benefits. So you insure to make up the difference and on average in a nursing home that will be around £12,500 a year. Each case has to be looked at in detail and the premiums can be very different for people of a similar age. For example, two female clients, both 82, one with heart and stroke problems was able to buy £12,000 a year benefits for £25,000, little more than two year’s fees. Another of the same age with Alzheimer’s had to pay the equivalent of five and half year’s fees because of her longer life expectancy."

If this seems a bit capricious, then that is how the market is. Philip Spiers a partner with the Nursing Home Fees Agency – which is an independent financial adviser specialising in these products – says it is essential to get quotes from all the companies.

"It is amazing the different quotes. Some see Alzheimer’s as life threatening, for example, some don’t. So we always get quotes from all the companies. Of course, these plans are not the only option. We tell some people to put the money in the bank and draw down on it, for example if there is a clear terminal illness. If the capital is adequate, you can invest it in safe products to cover the income needs. Immediate care plans, which will cost on average £30,000 for £10,000 a year costs, suit those with enough capital and who have a clear impaired life and who want the security of not worrying about it again. There is also a new product, currently only offered by one company, that allows you to pay for say two years out of capital and then insure the risk after that. And that will cost around a tenth of the cost of the full immediate care plan."

Another fear is that having spent £30,000 or more on a single premium, the person in the home might die within a few months. But that risk can also be insured. Healthcare Funding is another of the small number of financial advisers who specializes in immediate care plans. Director Sue Askham thinks this capital protection is important.

"Ask if the products guarantee payments for a number of years, because even if someone goes into a home with a life expectancy of three or four years, they could die in the winter from flu. So it is important to make sure you get something back. Also some will offer an annual increase in the annuity rate of say 5% to cover inflation. That can be a good idea. But it is expensive so sometimes I suggest they put the extra cost of that aside into the bank and fund the rising costs from that."

She agrees that getting quotes from the whole market is essential.

"I look at all the options in every case, they are all personalized and depend on how he evidence is interpreted. You cannot say one provider is always better than another – you need to look at them all every time."

Now that five companies are in the market, and more are considering it, the cost of the plans is falling, despite the increased costs of annuities in general. And now that the Government will pay at least some of the cost of nursing care, they should come down further in price. But it is essential to get specialist advice first.

Further information

Nursing Home Fees Agency www.nhfa.co.uk or ring 0800 99 88 33

Healthcare Funding 01246 431122

Age Concern 0800 783 8300

29 July 2000

e-mail Paul Lewis on paul@paullewis.co.uk