Elsie, 54, is a secretary for a big law firm in the City. She is covered by her employer's group income protection scheme. However, the scheme will only cover her until she reaches retirement age - 60. While she will receive a substantial pension she would still like to ensure she has some kind of protection should she fall ill and need medical treatment. What long-term care options are available to her?
• icky Cave, Millfield Care Partnership
Once Elsie retires, it seems private medical insurance (PMI) would be the product most suited to meet her stated objectives and she should take advice from a specialist in this market.
Looking even further ahead, however, PMI cover will not meet the costs that would be incurred should Elsie become ill enough to need full-time care.
Broadly speaking, if she has assets in excess of £20,500 at the time this happens, Elsie will have to meet the care costs in full. Some benefits may be available to help towards these costs but the majority may have to be met by Elsie.
She could just meet those care costs in full from her income and any savings, but this strategy carries the risk of those savings being depleted. Alternatively, she could use some of her capital to purchase an immediate needs annuity at the time.
While this option also carries risk in respect of loss of capital, it does provide a tax-free income, guaranteed for life for a known up-front cost.
However, to plan ahead, using some sort of insurance based product, there is only one option available to Elsie - Partnership Assurance's pre-funded Care Prepared policy.
Similar to the old style of pre-funded contracts, this would pay out a pre-determined income upon failure of a number of activities of daily living (ADLs) or mental impairment.
As an example, £12,000 a year income, payable after three months and after failing three ADLs would cost £88.69 per month but this increases to £201.56 per month if a 3% annual escalation of this income is included.
The premiums may also be reviewed.
• eil McCarthy, Partnership Assurance
The potential problem for Elsie is that she needs to consider the possibility of requiring long-term care at some time in the future.
From our experience there are three stages to retirement.
First, there is the "active" stage, when Elsie is still healthy and able to pursue the lifestyle she wants in retirement. Then comes the "passive" stage, where Elsie has to plan for slowing down but is still enjoying life.
Providing she has a reasonable retirement income these first two stages can be catered and budgeted for with relative ease.
It is the third stage, "care", that is the problem. We do not know when this need may arise and cannot predict the duration.
It is also the stage that can erode capital at a rapid rate. Care costs can be substantial, even over a short period of time, with average weekly fees in the UK currently running at £558 for nursing care and £427 for residential (£456 with dementia).
As Elsie will have "substantial" pension income she could look into purchasing a pre-funded care policy. Cover could be purchased for £1,000 per month, which should sufficiently cover any shortfall required to fund any care that may be required. Any claim that should arise will be triggered by a failure of two or more Activities of Daily Living (ADLs) such as washing, dressing, feeding, continence, mobility and transferring. Claims will also be paid upon confirmation of cognitive impairment.
Premiums can be paid monthly, yearly or as a lump sum. An element of inflationary cover is built in to guard against fee increases - this has been incorporated at 2%. This will escalate from the on risk date of the policy.
It's very much about Elsie's approach to risk, and the resources she feels she and her family can provide if the situation arises.
Iain Mallon, AXA
Elsie's income protection cover will end at the age of 60, when she leaves employment.
There are a number of options available to her to continue protection into her retirement.
The most suitable option for Elsie to consider would be to take out a whole of life (WOL) plan including critical illness (CI). The CI element would pay out on a range of illnesses associated with old age - for example, Alzheimer's and dementia. The CI element will not give cover for all illnesses - Elsie will need to be clear about what is and is not covered.
The product will pay out a lump sum on diagnosis of a critical illness.
This can be used to pay for medical treatment or contribute to nursing home costs.
It can also be used to buy an immediate needs annuity. This guarantees to pay a monthly income for as long as Elsie remains alive.
The premiums for such a product are determined on an individual basis, by assessing the degree of incapacity and life expectancy clients have following an illness.
However, there is no guarantee that the lump sum will be big enough to get the required income from the immediate needs annuity.
The WOL premium would be £137 per month, based on a £50,000 sum assured for life cover and CI cover.
The life cover that comes with the WOL product can also be used for wider financial planning, including inheritance tax, support for dependants and funeral costs.
