Health Care Focus: My house and savings I leave to the state

If you are not careful, the costs of long-term care may mean that you have nothing left to bequeath to your children. By Andrew Verity

WITHIN THREE months, the Royal Commission on long-term care will force the Government to confront an issue that has inexplicably dropped out of the public eye since Labour was elected last year.

The issue is how to help the tens of thousands of elderly people who are, every year, confronted with a stark choice between selling their homes and doing without the care they need.

For the moment, the Royal Commission has taken some of the political heat out of the issue and politicians have ceased to discuss it. But the facts are as hard as ever. Nursing homes cost an average of pounds 300 a week, or pounds 15,000 a year. One in six men will need long-term care, and one in four women.

But very few have the means to pay for it. Two out of three pensioners have an annual income of less than pounds 5,000. Many also have savings of more than pounds 16,000 - meaning that they will get no help from the state. They risk passing a big chunk of a lifetime's earnings to a nursing home, rather than to their children.

Private insurers, sceptical of the Government's will to solve the problem, have meanwhile been producing their own solutions. Many - such as Bupa, PPP and Norwich Union - now have long-term care policies for sale. But sales so far have been slack. Part of the reason is that many customers simply hope that they will never need to claim.

The other reason is the sheer cost of premiums. A claim of pounds 15,000 a year is expensive, so the premiums are, too. A 65-year-old woman buying long-term insurance with Bupa, arranging benefits of pounds 1,000 a month, would need to pay pounds 115.98 a month to buy peace of mind. A lump sum, one-off premium - for the same benefit - would cost pounds 15,900.

Such is the expense to the insurer that some policies - though not all - can become even more expensive when the cost of care goes up. To guard against the danger of rising costs, many insurers have the right to ask customers to top up their premiums in the future.

For those with money as well as a house, one solution comes from Scottish Provident. Today it launches a long-term care plan that guarantees that there will be only one premium.

The money is invested in a managed fund and premiums are deducted each month. If care is needed, both the fund and the insurer pay. But at the age of 85 the policyholder can get some money back without giving up his or her insurance. He or she then gets whatever is left in the fund, but is still covered for further care.

For those with a house but little income or savings, long-term care premiums may simply seem out of reach. Yet those same pensioners whose average income is less than pounds 5,090 also own homes with an average value of pounds 87,000. To some extent they are "cash poor, house rich".

Norwich Union will today launch a new product that allows pensioners to release some of that wealth. Norwich Union's capital access plan is like other equity release schemes in one way: a loan is offered, secured against the house. But it is different in one vital respect: as long as the policyholder is alive and living in the same house, no monthly repayments are necessary. NU extends a loan worth up to 30 per cent of the house price, secured on the whole house. The money is for the pensioner to keep. No interest is collected, and no repayments are due, until the borrower dies or moves into long-term care. The loan is then paid back from the sale of the house.

As long as the value of the house grows by at least 2.95 per cent a year, only the value of the "loan" will be repaid. Paying long-term care premiums may be a struggle, but Norwich Union has found one interesting way around the problem.