1. Mary's story

    Mary is 90, widowed and lives in Norfolk. She has dementia and a heart condition. Her husband passed away a number of years ago but she has two daughters who live locally; they support her with regular visits and help around the home.

    Mary’s family have recently become increasingly concerned with her ability to cope in her own home, so made the decision to move Mary into a care home in the local area.

    When Mary was first diagnosed with dementia she set up a Lasting Power of Attorney for her health, welfare, property and financial affairs, so her daughters are now able to manage her affairs for her.

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

  2. Mary and her family would like:

    • Peace of mind that Mary is receiving the full-time care that she needs.
    • The security of knowing that the majority of Mary’s care costs are guaranteed to be paid for the rest of her life.
    • To mitigate the risk of ongoing care home costs eroding her assets.

  3. Financial costs

    table
    Mary's assets Expected outgoings

    House: £225,000

    Savings: £25,000

    Annual income from State Pension and Attendance Allowance benefit: £12,181

    Mary has found a care home that she likes near to her family that costs £40,000 a year.

    Mary 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. 

    Based on Mary’s circumstances, her financial adviser suggests that Mary’s annual State Pension and benefits income will cover £12,181 of her annual care home costs. The shortfall could be covered by selling Mary’s home, and in exchange for an upfront premium of £110,878 a Lifetime Care Plan could pay £29,262 a year to the care home for the rest of her life. Her adviser included approximately £1,443 a year within the calculation to cover any personal expenses. Her daughters decide to ask the adviser to invest the money left over from the sale of Mary’s house.

    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 Mary

    Peace of mind that a guaranteed amount of her care home costs will be paid each month until Mary dies.

    In four years Mary will 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.

    Reassurance for Mary’s family that she is in a care home with access to the support and facilities she needs.

    As our Lifetime Care Plan provides Guaranteed Premium Protection for the first six months, a proportion of the fund would be returned to Mary’s 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%  £110,878
    2 to 3  50%  £55,439
    4 to 6  25%  £27,720 

    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 Mary and her family about the risks involved with the product:

    • Mary’s Lifetime Care Plan does not include escalation so the amount she receives will not increase over time. The care home cost may rise over time, and Mary’s family will need to cover the additional costs from other income.
    • If Mary dies after the first six months then her estate won't get any money back. Mary 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.
    • The total amount of monthly payments we make, plus any payment from the Guaranteed Premium Protection, may be less than the premium Mary paid for the plan.
    • Receiving payments from the plan may affect Mary’s ability to claim for means-tested benefits.
    • If Mary no longer requires care or becomes eligible for state benefits, the plan can’t be cancelled but payments will continue to Mary as she has an income for life.
    • While no income tax should be due on payments to Mary’s care provider under current law (2023), the rules governing tax may change in the future and affect Mary’s income. In addition, any payments we make directly to her or anyone other than a UK registered care provider will be subject to income tax.
    • Mary’s care provider may continue to charge costs even after she dies, but the payments from us would stop from the date of Mary’s death.
    • As Mary’s daughters want to invest the remaining assets, their adviser makes them aware that the investments are not guaranteed and can go down as well as up.