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Emma Simon: Is it time to look again at long-term care insurance?

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There was a vain attempt to sell pre-funded insurance back in the 1990s. “It was a good product,” someone told me recently, “apart from the fact that then, no one wanted to buy it and no one wanted to sell it.”

But with the introduction of a new cap on long-term care costs, could there now be a market for this type of insurance – or at least a rejigged version?

As has been covered in these pages, there is a big gap between what the cap will cover in practice and what most members of the public think it will cover. 

Thousands of people will have to spend much of the equity in their home on top-up care payments as “hotel” costs are not included in the cap.

I think the message will soon start to hit home that these changes do not change much at all and most people will still have to pay the majority of their care costs themselves.

So is there room for a product to help meet these costs – and protect an inheritance?

From the insurers’ point of view, it may look viable. In the worst cases, they will not be left signing a blank cheque for care bills as the Government should pick up a slice of the cost.

Rather than a policy that promises to pay “all care costs”, a more limited version may be possible that dovetails with what the local authority will pay. For example, how about a policy where the customer pays the care bills for the first three or five years but the insurer picks up the tab thereafter?

Clearly a lot of people who go into care will die within this period and so will not claim on this insurance. 

I assume that it would be far cheaper than buying an immediate needs annuity as the insurer pays nothing to start with and also has the Government cap as a backstop further down the line.

I think one of the problems with the old-style insurance was that it was aimed at the wrong people. A lot was targeted at 50- and 60-year olds, but surely people in this age group are far more concerned about maximising their own pension contributions or helping their kids through university and onto the housing ladder.

There is a lot of talk about the “care journey”. People are rarely as fit as a fiddle one day and being wheeled into a nursing home the next. 

The time to talk about finances is when people first need to access care services at home, making sure they have a will and power of attorney in place and considering appropriate insurance.

Many may be happy to spend all their accumulated wealth ensuring they have a good standard of care throughout their lives. But others may welcome choice, and having the option of spending some of the equity in their home to ensure that the rest is protected.

Emma Simon is a freelance journalist

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