Not surprisingly, long-term care insurance is generally nowhere on the agenda when IFAs are talking to clients in their 30s and 40s. After all, at that age, most clients will have other financial priorities.
Most will still be paying off mortgages, many will still be planning or financing school or college fees and for a good percentage this will often be the time when serious planning for pensions and other savings is just getting into gear.
But for those in their 50s and 60s, it is a different story. While most IFA clients in this age bracket will not yet be retired, retirement is inevitably going to figure prominently in their thinking and in their financial planning.
We will assume that both IFA and client are aware of the financial consequences of their needing care. Advisers have established his or her wealth and know that they would have to pay for their own care.
Advisers have convinced their clients of the need for LTC insurance after establishing that he or she does not want to see any of their savings and investments disappear in care home fees.
When do IFAs complete the work and when do they give the advice? Some times will be more opportune than others.
First, let us take the regular reviews IFAs carry out while a client is in his or her early to mid-50s.
What can an adviser do at this stage, assuming the client is fairly typical in so far as the mortgage is “under control” if not already paid off, there are no dependent children and the main priority is now their retirement?
The focus is on maximising income and measuring, if not minimising, the corresponding expenditure. Arranging LTC insurance in this scenario can be quite straightforward.
Good LTC insurance plans will offer a paid-up value facility so, by starting regular monthly premiums now, a reasonable amount of LTC benefit can be built up for the client, even planning for premiums to stop at retirement.
While this paid-up value may not cover all the care bills – that will depend on the amount of insurance bought to start with – it could well offset a fair proportion of the LTC bills and so save a client a great deal of his or her own cash.
Suppose a client starts paying LTC insurance premiums now at the age of 55. By the age of 65, assuming he chooses to retire then, a considerable paid-up value could have been built up.
As I have said, how much depends on the plan chosen.
But if at that stage, after 10 years' premiums have been paid, the paid-up value is aro-und, say, £1,000 a month of LTC insurance benefit, this would make a worthwhile contribution to any future LTC costs.
The client will have this amount of protection in place without having to find or budget for any further LTC insurance premiums in retirement.
Then, in the final planning exercises IFAs undertake with clients before retirement takes place, LTC insurance planning will be a must.
At this stage you will know:
What the client's pension is going to be when the time comes.
What the client's likely outgoings are going to be.
What pension lump sums will be available at retirement.
What other lump sums, share options, for example, will then come to fruition.
You will also know:
How much the client has got to leave to his or her heirs and who it is to be left to.
What is going to have to be done to provide against inheritance tax.
What the likely cost of LTC will be if it should ever be needed.
Plan from this solid base of infor-mation. IFAs have got enough information to do this. In the LTC arena, do not forget these two important pointers.
The Government has set out its stall on LTC financing – the current arrangements are with us for a good while – and IFAs have as much certainty in this area as they are going to get.
(For clients in Scotland, the position is not 100 per cent clear at present but you do still know that the bulk of care home costs – the board and lodgings element – will still have to be paid by the client if his or her assets are over the means-test limits.
The actual cost of care is likely to keep going up along with other costs.
Armed with this information, IFAs can establish the following:
How much a client will be able to put towards any future care costs, assuming he or she is not going to start eating into available capital to meet care costs.
What level of insurance benefit is needed to take up the shortfall.
How premiums can best be provided as regular premiums from ongoing pension income or by a lump sum from a pension lump sum or other one-off “income” and then arrange the long-term care insurance accordingly.
These are distinct opportunities for arranging LTC protection and distinct bases for arranging it, both doing a most useful job in protecting your clients.