Insurers have told Health & Protection they are more likely to investigate creating solutions to help plug the country’s social care gap now there is more certainty about future costs.
Announcing a range of measures last week including a 1.25% tax hike, prime minister Boris Johnson said the government was setting a limit on what people can be asked to pay for social care and it would work with the financial services industry to help people insure themselves against expenditure up to that limit.
However, the plans have been widely criticised including from within the Conservative party for placing the burden of funding care fees for the weathiest on those earning below average incomes.
And the cap does not cover the hotel or residential costs while people are in care homes.
Commenting on what insurance solutions could look like, Steven Cameron, pensions director at Aegon, told Health & Protection that insurance could potentially be used to pay out if individuals needed care, up to the newly announced £86,000 care cost cap.
“This could be in lump sum form or on a monthly basis to over care costs until the cap is reached,” he said.
“At this stage, the costs of such insurance are not clear and may be relatively high, particularly if those attracted to buying it are those most likely to claim.”
He added that another option was to build up a savings fund for use should a client need care. “The pension freedoms led themselves very well to this,” Cameron continued.
“There is nothing stopping someone ‘notionally ringfencing’ the capped amount in their pension drawdown pot, aiming to live off income drawn from the balance.
“This is not only tax efficient, but it means that if care isn’t needed, the funds are still available within their pension for other later life needs or for passing on as an inheritance.”
Peter Hamilton, head of market engagement for Zurich UK, noted there were care related products already in the market – including immediate needs annuities, equity release and some ancillary benefits on some whole of life products.
Hamilton added that now there was more certainty around the support the state is likely to provide, insurers were more likely to look more closely at developing products to help solve the issue.
“It’s unlikely we’ll see savings products developed specifically for long term care, but we may see more focus on notionally identifying funds within existing savings vehicles such as pensions and ISAs,” Hamilton added.
“It’s too early to say what shape insurance based products might take, but they may well involve looking at how we help customers address specific needs – how to meet the first £86,000 for example, or what we can do, possibly with the benefits of technology, to help customers stay in their own homes for longer.”
A spokesperson for Vitality pointed out that it already offers a later life insurance product – Dementia and FrailCare Cover.
“Dementia and FrailCare Cover can be added to Vitality serious illness cover polices, that have a minimum term length of 10 years, at no extra cost.
“When a member’s serious illness cover policy ends, their Dementia and FrailCare cover starts. Dementia and FrailCare Cover pays out a tax-free lump sum of up to £100,000 on diagnosis of dementia, Alzheimer’s, Parkinson’s, stroke or frailty with the pay out based on the severity of the condition.
“Like our serious illness cover, as a condition worsens, members can make multiple claims up to the total cover amount. The money can be used to pay for social care or any other costs that the individual chooses.
“Dementia and FrailCare Cover is popular among our members with around eight in ten (81%) members of eligible plans choosing to take out the later life option.”
From next April a UK wide 1.25% health and social care tax on earned income will be introduced which is expected to raise almost £36bn over the next three years, with money going directly to health and social care across the UK.
Johnson also revealed that from October 2023, no-one starting care will pay more than £86,000 over their lifetime and no-one with assets of less than £20,000 will have to make any contribution from their savings or housing wealth – up from the current amount of £14,000.
Anyone with assets between £20,000 and £100,000 will be eligible for some means tested support.