Planning For Care Costs?

lisyloo

Keep_pedalling wrote: »

If only we all had a crystal ball, that told us if and when that would happen. If I did I certainly would not deliberately leave my fate to the LA though. If I need care I want it when it’s needed not when a financial panel decides that I am decrepit enough to get it and I want the choice of care at home (and I don’t mean three 15 min visits a day), and if my needs are too high for that I want a care home that provides a high quality of care, with good accommodation and facilities.

Yes good point there that I forgot to mention.
Not only will LA funding mean you might get somewhere horrible away from spouse and family, but it will also be at the last possible moment I.e when you’ve actually set fire to something, or fallen or forgotten to drink for so long you get put on an IV drip or your elderly spouse has had a mental breakdown.
If you have your own means you can make your own decisions or have attorneys make them for you when it is wanted as opposed to when there is no other option.

Keep_pedalling

lisyloo wrote: »

Yes good point there that I forgot to mention.
Not only will LA funding mean you might get somewhere horrible away from spouse and family, but it will also be at the last possible moment I.e when you’ve actually set fire to something, or fallen or forgotten to drink for so long you get put on an IV drip or your elderly spouse has had a mental breakdown.
If you have your own means you can make your own decisions or have attorneys make them for you when it is wanted as opposed to when there is no other option.

And further to that is the issue of the pressure that is put on your loved ones to make up for the lack of professional help.

Twointhebush

Thanks for your replies. Much appreciated.

Concerning a Long Term Care Annuity, surely the provider takes a detailed look at the care needer and assesses the risk? And charges accordingly? A quick look tells me that the older you are the cheaper it gets, but I anticipate that the complexity of the health issues are also taken into account.

Part of our plan is for me to provide care in the home for my wife, but with Sods Law being what it is, it'll be me needing the care first. I was wondering if there was a product/s I can start paying into now. We're still in our forties. My thought was to apportion a part of our pension planning to care costs. I keep reading about the dismay of people, when they see their inheritances go up in smoke, so it seems sensible to actually have something set aside. Especially as my old age is still 30 odd years away, and who knows what the World will be like even in a couple of months?

lisyloo

Twointhebush wrote: »

Concerning a Long Term Care Annuity, surely the provider takes a detailed look at the care needer and assesses the risk? And charges accordingly? A quick look tells me that the older you are the cheaper it gets, but I anticipate that the complexity of the health issues are also taken into account.

Absolutely.
The 3 times annual fees was a ballpark for 91 year old female before we got into the medical stuff (which we never did).
It’s basically all down to your estimated longevity.
For example my MIL has had arthritis for 50 years. This will probably not affect her longevity at all (she’s unlikely to fall now with assistance of 2 carers at all times).
She also has dimensia. This will affect her longevity so they would look at the severity, how long you’ve been diagnosed and work out how long they think you will live on an individual basis.
There is no way or set of circumstances to win with an annuity because they look at your individual longevity and then add on their profit.
You are merely buying peace of mind and hedging the risk that you live beyond statistical norms.
This could make sense for some people, but not the rich and not the poor.

I don’t believe there is any product you can get now, but you could mentally apportion part of your pension.
Given the tax relief available that’s probably your best bet.

I’m current doing detailed pension planning and have recorded my desired outgoing as essential, discretionary and extravagant.
There’s no reason you couldn’t add another category, draw it down at basic rate between 55 and 85, to prepare to buy an immediate needs annuity.

Please pick holes.

Malthusian

Twointhebush wrote: »

Concerning a Long Term Care Annuity, surely the provider takes a detailed look at the care needer and assesses the risk? And charges accordingly?

Correct - care annuities are fully underwritten.

I was wondering if there was a product/s I can start paying into now. We're still in our forties.

Yes there are. Pensions, ISAs, house purchase (if you don't already own one), buy to let - essentially the same thing you would pay into for any other future need that may or may not arise.

If you're wondering if there is some kind of insurance product (other than care annuities), no there isn't. There is no market and no incentive for future care recipients to cross-subsidise each other. (The only way to make them cross-subsidise each other is tax, which is how the system already works.)

Insurance is only valuable when you want to protect yourself from an event that may arise long before you have a chance to save enough to self-insure (like your house burning down). This does not apply to care. If a need for care is potentially imminent, you are uninsurable. If you have plenty of time but still can't afford to accumulate enough assets to self-insure, you can't afford care insurance premiums either.

On-the-coast

Malthusian - I know you are correct (as the market currently stands) :
"This does not apply to care. If a need for care is potentially imminent, you are uninsurable. If you have plenty of time but still can't afford to accumulate enough assets to self-insure, you can't afford care insurance premiums either."

But i do not understand why this should be the position. 90% (a guess on my part) of people will require very little care funding. I'd be very happy to buy insurance (well in advance) that would cover my care in the event that I'm one of the 10%.

Self insuring by building up a fund of a great deal of money... that i have a 90% chance of not needing doesn't seem financially sensible. What is it about long term care insurance (bought early while in good health) that is a non-starter for the finance industry?

For "average people", use of a house as the very large fund is really only a once in a generation solution (for those of us who got lucky in the great house price escalation timing)

Linton

On-the-coast wrote: »

.......
For "average people", use of a house as the very large fund is really only a once in a generation solution (for those of us who got lucky in the great house price escalation timing)

Going into a care home is a once in a generation problem (or twice for a couple).

Your home is an asset which can be sold. It doesnt make any difference how much you paid for it.

hugheskevi

What is it about long term care insurance (bought early while in good health) that is a non-starter for the finance industry?

The probability of needing care is significantly higher for females than males. This is partly due to the tendency for males to be, on average, about 3 years older than their spouse.

As couples age, it is common for them to care for each other and have a lower probability of needing residential care. Due to male life expectancy combined with martial age difference, it is common for the male to die first, with the female then more likely to require residential care in future years.

Given the inability for insurers to discriminate on gender, it is difficult to envisage a market given this stark difference in gender, or at least, a market which any male would find attractive (due to adverse selection, prices are likely to be largely based on female probability of needing care).

Future care needs are not an ideal market for insurance, as it is very difficult to forecast costs, even at short notice let alone long periods. It is also vulnerable to adverse selection without compulsion, ie, those most likely to need care are more likely to purchase insurance.

There is very little to invest in that will match asset returns to liabilities, so insurers would be heavily reliant on their forecasting models. That makes competition difficult, as insurers are competing primarily on their risk appetite, and liabilities are unknown for many years. That can lead to undesirable behaviour, as profit is booked in accounts at the point of sale, so there could be an incentive for unsustainable pricing (similar to some with-profit contracts in the past, and unsustainable guarantees).

So in the absence of compulsion and given all the above, I can't see a long-term, sustainable market existing except at extremely high premiums. That would make insurance prohibitive for those with low incomes, those with high income/capital would likely prefer to self-insure given the cost of insurance, and the tendency for individuals to discount the future highly is unlikely to make expensive insurance attractive to middle income pensioners.

Long-term insurance contracts are fraught with problems. What if the client needs/wants to stop contributing? How can you structure competition? If a client wishes to change provider what happens to past premia? If they are being built up in a pot and can move with the member, is this any different to just building up cash reserves themselves? Whilst perhaps not insurmountable issues, it does mean a market is unlikely to develop without a lot of structure.

On-the-coast

Linton wrote: »

Going into a care home is a once in a generation problem (or twice for a couple).

Your home is an asset which can be sold. It doesnt make any difference how much you paid for it.

I didn’t word that very well... but I have children who are saving up deposits for houses... and paying a lot more (in terms of income multiples than I did), and paying higher in tax due to student debt, and facing a far less generous pension environment. I suspect modern “youth” will be using their house downsizing for pension purposes rather than care costs. What you pay makes a great deal of difference to the profit in your asset.

lisyloo

On-the-coast wrote: »

But i do not understand why this should be the position. 90% (a guess on my part) of people will require very little care funding. I'd be very happy to buy insurance (well in advance) that would cover my care in the event that I'm one of the 10%.

Let’s suppose annuity is £100k, but we need to consider that those who think they die in their 50s won’t buy it and those who have longevity on their side will buy it, so we can’t just say 10%.
Let’s make it £50k and Not £10k

How many people do you think would pay a £50k premium for something they probably won’t need?

The poor won’t, the rich won’t.

I’m not convinced it’s a good business proposition.
Small market and high exposure/risk.