Covering long-term care

People in need of long-term residential care are expected to pay for it in full, unless they have extremely limited amounts of capital and income.  and capital often includes the value of their former home.  Local authorities carry out financial assessments and individuals are charged what their local authority determines they can afford.

For 2009/10, the allowances and limits are: 

• The local authority assigns a weekly personal expenses allowance (PEA) from the resident’s income of £2190. Residents must use their capital to contribute to the total cost of their care until their capital reduces to £23,000. 

• Once a resident’s capital reduces to £14,000, no further contribution is necessary. 


• Between £23,000 and £14,000 the local authority will assess a ‘tariff income’ from the capital. It will take into account, as weekly income, £1 for every complete £250, or part of £250, of capital over £14,000. 

• The capital value of a resident’s home counts towards these limits, unless the property continues to be the home of their spouse or certain relatives. The value is disregarded for the first 12 weeks after admission into the care home. 

After three months, the local authority can take a charge on the home, in which case fees will eventually be paid out of the proceeds of the property sale. This effectively represents an interest-free loan from the local authority. 

As a general rule, in these circumstances the care component of disability living allowance and attendance allowance will continue to be paid. 

An immediate care plan can be a useful option when an individual needs care because it can effectively limit the amount of capital spent on care fees. Immediate care plans are a type of annuity and provide an income, level or index linked and guaranteed for life, in return for a lump sum payment. However, if the economy begins to recover, inflation may be a factor again and there could be a shortfall between the income from an annuity and the rising costs of care. 

A major advantage of an immediate care plan is that it is underwritten. The health of the individual is assessed to estimate their life span actuarially. Many care home residents have a shortened life expectancy due to illness, so the rates offered can be attractive. The plan pays out until the individual no longer needs care. 

To purchase an immediate care plan, an individual must already be in need of care. If they die, unless the plan specifically provides otherwise, there is no payment from the insurance company and the payments stop. 

When care is needed, immediate care plans should be considered, even if only for part of the fees. They can help to give peace of mind over paying care home fees during what is often a particularly stressful time. This is an area where individual advice is essential.