Livia, 87; widowed

This case study does not represent real people and is for illustrative purposes only.

 

  1. Livia's story

    Livia is 87, widowed and lives in London. She has become concerned about her ability to continue living in her home without assistance.

    She now struggles to manage the stairs in her house and finds it hard to get up in the morning. She has difficulty getting out and about to see her friends as much as she used to, and she misses the company of others.

    She has three children who take it in turns to provide care at home, but they find it difficult to juggle with their young families and work.

    Livia is not eligible for any assistance from the state and will have to pay for her own care.

  2. Livia would like:

    • To move into a care home so she has more support and to improve her social life.
    • To secure the majority of her care costs so they are guaranteed to be paid for the rest of her life and for this monthly payment to increase over time to help pay for any increase in care costs.
    • To be able to leave an inheritance for her children and grandchildren.
    • To mitigate the risk of ongoing care home fees eroding her assets.

  3. Financial costs

    table
    Livia's assets Expected outgoings

    House: £1.1million

    Investments: £250,000

    Savings: £50,000

    Annual income from personal and state pension: £16,800 after tax

    Livia has found a care home that she likes near to her family that costs £52,000 a year.

    Livia would like to have a weekly allowance of around £30 to pay for treats and personal expenses.

     

  4. Suggested actions

    Please note this example is not real, it is for illustration purposes only.

    Livia will keep £27.75 a week from her annual pension income and use £15,357 to pay the first part of the care home costs. Livia could fund the Lifetime Care Plan from her savings and investments, or from the proceeds from selling her house, should she decide to sell it

    Livia decides to sell her house and use £163,042 to buy a Lifetime Care Plan to receive £36,643 a year to be paid to the care home for the rest of her life, increasing each year by 5%.

    Buying a Lifetime Care Plan is a once and for all decision. Your client can buy one with us or another provider and by shopping around they may be able to get a better deal.

  5. Benefits for Livia

    Under current tax rules, the cost of her Lifetime Care Plan will be taken out of Livia’s estate’s future value. This can help to manage inheritance tax liability. Any death benefits will be paid out as part of the estate.

    For someone of her age, the average life expectancy, according to the Office for National Statistics longevity calculator, is 93 years old, six years from now. It will take her just over five years to have recouped the initial amount she paid for her Lifetime Care Plan.

    Under current tax legislation, no income tax should be due on payments we make to a UK registered care provider.

    Because Livia has selected to have the Lifetime Care Plan payments increase by 5% a year, this may go some way to helping pay for any future increases in the care home costs.

    Livia and her adviser choose to place the remaining assets in suitable investments as she is reassured there is an amount of money already ringfenced towards paying for her care costs.

    As part of her Lifetime Care Plan, Livia automatically has Guaranteed Premium Protection for the first six months of the plan. So a proportion of the original payment would be returned to her estate in the event of premature death in the first six months, less any payments we've already made: 

    table

    Premature death in month

    % of premium returned

    (less any payments made to date)

    Monetary amount

    (less care costs to date)
    1  100%  £163,042
    2 to 3  50%  £81,521
    4 to 6  25%  £40,761

    Actual payments from the Guaranteed Premium Protection will depend on individual circumstances. Any amount paid to a client's estate may be subject to inheritance tax.

  6. Risks

    When meeting a financial adviser they would tell Livia and her family about the risks involved with the product:

    • If the cost of care is higher than the monthly payment or it increases more than the fixed 5% that has been agreed, Livia and her family will need to cover any additional costs from other sources.
    • If Livia dies after the first six months then her estate won't get any money back. Livia could have chosen to protect a percentage of her original premium for more than the first six months of her plan by selecting Additional Premium Protection.
    • If Livia no longer requires care, or becomes eligible for state benefits, the plan can’t be cancelled but payments will continue to Livia, as she has an income for life.
    • Receiving payments from the plan may affect Livia’s ability to claim for means-tested benefits.
    • While no income tax should be due on payments to Livia’s care provider under current law (2023), the rules governing tax may change in the future and affect Livia’s income. In addition, any payments we make directly to her or anyone other than a UK registered care provider may be subject to income tax.
    • Livia’s care provider may continue to charge costs even after she dies, but the payments from us would stop from the date of Livia’s death.
    • The total amount of monthly payments we make, plus any payment from the Guaranteed Premium Protection, may be less than the premium Livia paid for the plan.
    • As Livia wants to invest her remaining assets, her adviser makes her aware that her investments are not guaranteed and they can go down as well as up.