Paying for long-term care: planning, costs & insurance

In case you, or a family member needs care in later life, it’s important to be prepared.

That means thinking about your likely requirements, the cost and how you’ll foot the bill.

What is long-term care?

‘Care’ is a very broad term. It can mean support with everyday tasks that an able-bodied person could reasonably be expected to do for themselves or medical services to treat ongoing conditions, including the general effects of old age.

Care can mean anything from someone visiting a few times a week to offer assistance to receiving 24-hour care in a residential home.

What kind of care do I need?

Whether you are looking for care for a family member or yourself, the first step is to contact your local council.

It can then conduct a care needs assessment to identify the support that’s needed.

This is your opportunity to explain what things you (or your family member) are struggling with, covering everything from getting up and around to washing and cooking.

After the assessment the council will then make a recommendation for the care that you need.

How much does care cost?

The exact cost of your care will depend on various things, such as the type of care you receive, how many hours per week you need it, where in the UK you live, and your care provider.

Here is a broad summary of the expected costs for different kinds of care.

Care in your own home

Care at home costs an average of £25 per hour, according to Age UK.

This can vary depending on the provider and when you need care, as night times and weekends may be more expensive.

A residential care home

The average cost of a residential care home in the UK is around £49,348 per year, according to Age UK.

However, this can vary significantly depending on where you live.

For example, some care homes in the North West may be cheaper, while those in London are likely to be more expensive.

A nursing home

Nursing homes for those with higher needs are generally more expensive (£65,884 per year on average), but like care homes, their fees vary by region.

Will I get help with the costs?

Once your council has conducted your care needs assessment (and recommended care), it will then carry out a financial assessment or ‘means test’.

Most people will need to fund their own care, but you may get help if you have limited savings or other assets.

In England:

• Those with assets worth more than £23,250, including their own home, will usually need to fund their own care.

• Those with wealth between £14,250 to £23,250 may have to pay a contribution to their care costs, based on their capital.

• Those with wealth below £14,250 will often get financial support from their local council, assuming they have eligible care needs.

If you’re paying for your own care and your capital reaches £23,250, your local council may help with funding.

Your home is usually counted as part of your assets but may not be included if a spouse or civil partner is living there or you’re receiving temporary care.

The figures above are for England. In Scotland personal care is free - the upper and lower thresholds are higher too at £35,000 and £21,500 respectively.

In Wales, full council support is available if you have less than £50,000.

Continuing Healthcare, a little-known lifeline

Some people are eligible for NHS Continuing Healthcare (CHC), which funds those who have high and complex needs. 

While this funding is difficult to get, it covers all care bills and is not means-tested so it is also very valuable.

You can find out more on the NHS website and get free advice on how to apply from Beacon, which has an NHS-funded helpline.

Other forms of government funding include NHS nursing care, which could pay for part of your fees.

How to pay for long-term care

There are many ways to pay for care, including:

• Using your pension income

• Savings and investments

• An immediate care plan

• Drawing on your capital

• Using the proceeds from selling your home

Care is usually costly, and full-time care is often very expensive.

If you struggle to see how you can meet this challenge, your first port of call should be your local council to ask if any care can be funded. 

You could also consider talking to a financial adviser who specialises in long-term care.

Remember that funding arrangements may take time to put in place, so the sooner you act, the better. 

Your options for funding long-term care may come from one or more of the below.

Pension income, savings and other assets

Your private income, such as from your pensions, the state pension and any savings or investments you may have, may cover at least some of your care.

A benefit called Attendance Allowance, for those over state pension age, can also help with the cost.

This is tax-free and not means-tested. It currently pays £76.70 a week if you need frequent help either during the day or the night. A higher rate of £114.60 is payable if you need care around the clock, or a medical professional says you are near the end of your life.

However, if your care needs are significant, you will probably need other solutions too.

Immediate care plan

This is sometimes called an immediate needs annuity, and like an annuity, this product is set up in exchange for a lump sum.

It’s designed to pay the shortfall between your income and care costs for the rest of your life and is paid directly to the care provider. This means that unlike regular annuities, the income is tax free.

Some immediate needs annuities may increase their payments automatically to keep pace with care costs.

Drawing on capital

You could simply withdraw capital and pay for ongoing care costs from the wealth that you have accumulated, but tax can be an issue.

Your main home is usually free from capital gains tax (CGT), but other assets like a buy-to-let property can be subject to CGT when you come to sell them.

Your home

You could sell your home to pay for some of your care costs or release some value from it using equity release.

Alternatively, you could rent out all or part of it to boost your overall income.

A financial adviser can review all the options with you to find the best solution.

They should also be able to offer practical recommendations on the types of care available.

Importantly, they can also show you that long-term care can be affordable, and need not impose a burden on your family.

Long-term care insurance

Currently there are no mainstream insurance products for covering long-term care.

The closest thing to long-term care insurance is the immediate care plan or immediate needs annuity, which can be set up to rise with costs and inflation. 

What if I can’t manage my finances?

Conditions like dementia, or simply the effects of old age, can make it hard or impossible for a person to manage their finances.

This can happen to anyone, so it is advisable to set up a lasting power of attorney while you are fully fit and well.

In doing this, you choose a person or persons (usually family members) who can act on your behalf during your lifetime.

Talk to a solicitor about setting this up - it’s never too soon to arrange it, and it can be just as vital as making a will.

Plan for care now and ringfence your inheritance

Whatever option you choose, paying for later life care can undoubtedly strain your finances.

But if you plan ahead and get financial advice, it may be possible to structure your finances in a way that means you may still be able to ringfence some money to leave as an inheritance.

Get expert financial advice

If you’re worried about funding your care or that of a family member, the most sensible first step is to seek professional advice.

Long-term care is a highly specialised area, so search for a financial adviser with the appropriate qualifications and experience via Unbiased.