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Paying Privately – The Options

Those who do not qualify for the free care or a "Deferred Payment Agreement" must pay from their own resources. This can be by way of any one or a combination of the following methods.

Immediate Needs Care Plan

The major benefit of this type of plan is that it will continue to pay the insured amount for as long as care is required. You have several options with this type of plan too, because there is the facility to build in escalation of the benefit and to build in capital protection of the initial cost of the plan if you wish. Escalation of the benefit is useful because the cost of care will increase over time and care payments will only be covered if the increases in the plan payments match the increasing cost of the care.

Capital protection is available at different levels but, the more protection bought, the more expensive the plan. This type of plan is very tax efficient, as payments received from the plan provider are paid free of tax, as long as they are paid to a recognised care provider.

Deferred Care Fees Plan

A deferred care fees plan provides the same benefits as an immediate care needs plan but with this option, the benefits do not commence until the deferment period has elapsed. It is a cheaper option than an immediate needs plan, but the monies have to be paid up front and there is no capital protection.

People use this option as a ‘stop loss’, where they wish to use savings for a certain period to pay for the care required, but would like to know that at the end of this time, the plan will then commence and take over the payments for care up to the level covered by the plan.

For either of the above options :-

• If the care costs exceed the income provided under either an immediate or deferred care fees plan, then these will need to be funded independently.
• These plans have no cash in value at any time and cannot be cancelled and are therefore only suitable for people requiring indefinite care.
• If residential or nursing care is no longer required this type of care plan would revert to a standard annuity rendering it potentially liable to income tax.

Investment

The potential loss of capital in the event of premature death is a major factor in people deciding not to pay for care with an immediate needs annuity. To them the alternative risk of market fluctuations with investments is more preferable.

Investment is certainly an option where the yield to be achieved on the capital can be obtained with either no or, at worst, an acceptable level of capital erosion. This option would, however, need regular monitoring to ensure that the investment plan remained on course.

The tax treatment of certain investments depends on the individual circumstances of each person and may be subject to change in the future. It is important that you appreciate that the value of non-deposit based investments, as well as any income they generate, can fall as well as rise and that past performance should not be treated as a guide to future returns.

Equity Release

Not all care is delivered in a care home environment. Most people want to remain in their own home for as long as possible and this can be achieved with the right support. There are specialised equity release schemes available that enable people to release capital or income which can then be used to fund the care they need in order to remain in their own home.

Further details are available in the equity release section of this website, including a case study of using equity release to fund care at home.