The mix of business for many IFAs has chan ged considerably over the last few years and this will almost certainly continue to be the case.
On the up side, sales of cri tical illness insurance and accident, sickness, unemployment cover have grown to compensate for reductions in state benefits. On the down side, endowment mortgages no longer hold sway and the arrival of stakeholder pensions will inevitably impact on some IFAs' business.
So what else can help inc rease the range of financial advice which an IFA can offer his clients? How about long-term care insurance?
Long-term care has huge potential for many IFAs. The target market is the financially-aware, better-off grey market – clients you have adv ised in the past, who already know you and trust you, who are willing to listen to your advice and who have the means to implement it.
So why does any client need long-term care insurance? Well, some would say that no one does. After all, the state has a means-tested long-term care system so that, if you need care, you will only be asked to pay for it if you have the resources to do so.
But the snag is that, if you do have to pay for care, you will have to meet the full costs for as long as care is needed until your capital depletes to the theshold below which the state will contribute to the costs. Most people quite simply do not want to face the prospect of spending all their own money on care they would rather not be having in the first place.
It should be remembered that:
Anyone whose assets amo unt to more than £16,000 and who is admitted to a residential care home or nursing home will currently have to pay all the care bills until those assets fall to £16,000.
People whose assets amo unt to less than £16,000 may find their local authority is forthcoming with some help.
If care at home is possible – and that is what most people actually prefer – the means test can be even harsher.
In practice, the capital limit at which the individual has to pay in full can be much lower than £16,000 – £8,000 is a commonly used figure at present – and the means test can enc ompass the partner's resources as well as those of the individual needing care.
Change is coming but don't hold your breath. There are certainly changes afoot in the way that long-term care costs are apportioned but they are strictly at the margins – the same basic regime is still going to be with us.
The capital limits for residential care will be raised marginally – by around £2,000 or so – and will be indexed in future. The capital limits which apply to care at home will rise to match those applying to residential care.
Nursing care costs, which will rarely be more than a small proportion of the total nursing home costs a person faces, will in future be met by the NHS rather than the individual.
None of which changes the picture significantly for most of your clients. Their income and assets will put them firmly in the self-funding category if they need long-term care.
These people need your help now and they will continue to need it in the future if they are not to allow their income and capital to remain hostages to possible ill-health.
So how do you start to help these clients? The companies providing long-term care ins urance between them offer enough options to make it possible for you to recommend cover in almost all circumstances. There are pure insurance plans, single and regular premiums, plans with guar anteed premiums and plans which are reviewable, plans which are funded dir ectly from investments, and plans which link investment and long-term care insurance in a way which allows the investment to be altered if required. Find out about them all.
Some companies will help you get started by providing comprehensive information and training about long-term care generally, about products and on how to be effective in advising your clients on their long-term care insurance needs. Find out which ones will do that for you.
Which clients are likely to need long-term care insurance? Three factors come into play here. When you have built up your own knowledge base on the subject, what you already know about your own clients should make it relatively easy to reap the benefits of your new knowledge.
As we have seen, only those with the most modest means do not have to pay the full cost of their own care. Those with even modest assets are going to have to pay their care bills. You know who these people are so you know who could do with some help in paying those bills.
For anyone aged around 35, there are alternative financial priorities – mortgage, school fees funding, pension, income protection. By around 55, much of this baggage will have gone and more income is available to provide against long-term care ri
At retirement time, there is a heaven-sent opportunity to build in long-term care issues as part of what may be your client's last major financial planning exercise. Many cli ents will also know of family members or neighbours spen ding substantial amounts of their own money on long-term care bills – in itself a salutary warning.
Less precise than wealth or age but not hard for you to second-guess. While many will concur that those who have money ought to pay their share, not many people think “their share” is the whole lot or go as far as to volunteer to spend all their own money on long-term care.
Of your clients with families, how many do not want to leave them the maximum inheritance?
When you have the know ledge, it should not be difficult to share it with these clients in a way which demonstrates the huge potential benefits in taking out long-term care insurance.
And a thought on which to close. Do not be put off by the size of the figures quoted as the costs of a nursing home place or of intensive care at home or think that your clients cannot afford that amount of insurance.
Your clients will get some financial help from the state during disability. Almost inv ariably, they will also have some income to offset against care costs. They may well feel quite comfortable that, while their insurance plan takes the brunt of the financial burden, they do need to dip into their savings a little to pay for long-term care. Go to it!