Later Life Planning Flashcards
Why is the need for later life planning rising?
1) Increased Life Expectancy
2) Rising cost of care (and living)
3) As you age, financial needs are more complex
4) Changing IHT rules
What is equity release?
Financial products that allow (over 55s) to access equity within their homes
**Without losing the right to live there **
Can be done through borrowing against the value of a home or by partially selling
What are the three main types of equity release?
1) Lifetime Mortgage
2) Home Reversion Plan
3) Home Income Plan
How does a home income plan work?
Take out a loan against house and use loan to purchase an annuity
Mortgage is not rolled up - annuity will pay the interest
Remaining loan is paid upon death or moving into care home
What is a lifetime mortgage, how does it work?
Borrow a lump sum against property - the interest is rolled up at a fixed rate (does not have to be paid while alive)
Do not have to use the lump sum to purchase an annuity - instead can do as you please
The loan is repaid upon death or moving into a care home
What are the pros of a lifetime mortgage?
most also apply to home income plans
1) Can stay in own home for as long as possible
2) Mortgage repaid on death
3) No negative equity
4) Interest rates fixed (or capped)
5) Lowers IHT bill
What are the cons of a lifetime mortgage?
most also apply to home income plans
1) Reduces amount of inheritance you leave
2) May limit ability to move property
3) DWP Benefits are negatively effected
4) Costs
5) Inflexible
What are the four primary costs associated with equity release?
1) Advisor Fees
2) Survey Fees
3) Legal Fees (Conveyancing)
4) Application Fees
application fees are only charged by some
What is home reversion?
Selling a share of your property (at a discounted value)
In exchange, receive a cash sum as well as rent free lifetime tenancy of your property (until you die or go into care)
on death or care - still get access to whatever share not sold (home reversion company receive the rest)
only available to those over 60-65+
Benefits of home reversion?
1) still have a share to sell for care
2) Can stay in home as long as possible
3) some IHT still possible
4) IHT reduced
Drawbacks of home reversion?
1) DWP benefits reduced
2) Reduces inheritance
3) Receive less than market value
4) Poor value on early death
5) inflexible if circumstances change
When is state assistance available for care costs?
For an individual whose total capital is worth less than £23,250
Therefore individuals with capital <£23,200 are entitled to state support with care
What is the average cost of care in the UK per annum?
£41,600
Fluctuates based on area (e.g. London more expensive)
What are the two types of long term care insurance?
Immediate Care
Pre-funded LTCI
What is immediate care LTCI?
What are the key features?
An annuity which provides guarenteed cover of care costs for life
1) Paid direct to care home
2) For those already needing care
3) Tax free (if paid direct)
4) Guarenteed lifetime cover
Who should be consulted re: Immediate Care LTCI
What should an advisor be aware of as a result?
Immediate family should be consulted
An advisor should be aware of the conflict of interest which arises as a result of the reduce to inheritance
How did pre-funded LTCI work?
Fit individuals would pay premiums which would go towards the cost of care in the future
could also pay a lump sum
What happened to pre-funded LTCI?
It has been withdrawn from UK markets due to a lack of demand
