Look at summary as it explains it wellREAD OVER 8.1 AGAIN Chapter 8 - Long Term Care (3 exam questions)– LTC Insurance Flashcards
What are Activities of Daily Living (ADL’s)
ADLs are used by insurance companies to assess how independent an individual is. They help assess the level of care that an individual requires.
long term care insurance uses six ADLs (SEE IMAGE)
Other insurance products can use other ADL’s
What is Long Term Care and what is long term care insurance?
Long term care:
Long term care is the help provided to someone who is unable to carry out Activities of Daily Living, due to illness or disability.
The levels of care vary widely between individuals so ADL’s are used as an assessment tool
Long term care insurance:
LTC insurance provides regular payments, if the policyholder is unable to carry out a pre-specified number of ADLs.
Long term care usually relates to a chronic long-term condition, rather than an acute short-term condition.
True or false
True
Who is responsible for carrying out the means testing assessment
The individuals local authority
What income and assets are taken into account when an individual is being means tested?
What happens if an individual has a large pension fund but no income is being drawn from it?
NOTE: If an individual needing care has a pension fund value where no or little income is being taken, then this pot will be treated as if it produces income equal to that of a notional annuity that could be provided by the funds.
This income will then be considered in the means testing exercise.
What income and assets are excluded during means testing assessments?
If an individual needing care has a pension fund value where no or little income is being taken, then this pot will be treated as if it produces income equal to that of a notional annuity that could be provided by the funds.
The capital value of Life Assurance Investment Bonds are excluded from mean-tests assessments?
True
One of the reasons that investment bonds can be valuable
Question
When an individual is undergoing a means test assessment to receive is there property taken into account?
DONT WORRY ABOUT THE CALCULATION ON THE IMAGE
The home value is disregarded for the first 12 weeks, from when local authority support payment begins (obvs assuming they are eligible for this too)
After 12 weeks, the property will continue to be disregarded if the person is: SEE IMAGE
However if the property is taken into account (if they are not eligible after 12 weeks) a charge will be placed on the property, which must be repaid on the death of the individual who requires care (this is because local authorities cannot force a sale)
dont worry about calculation
Both examples show someone’s savings affect how much they must contribute to their care.
hen assessing the amount of help an individual is entitled to, a local authority will look first at the amount of savings and investments they have:
If savings are above a certain amount, no assistance will be given. The individual will have to fully fund their own care until savings reduce to an amount where support is available
If savings are below a certain amount, full assistance will be given.
The individual will have their care fully funded by the state.
If savings are between these two thresholds some assistance will be given
What is deliberate deprivations
Summary of LTC and the need of cover/what is assessed
IMPORTANT
There are many different types of care. One is called domiciliary care. What is this?
Summary of the types of care tomorrow
What is the purpose of LTC insurance?
What are the 5 main types of LTC insurance
Long term care policies provide monies to cover long term care costs, such as help in the home, property adaptations such as a stair lift, or the costs of residential or nursing care.
It is very useful, if an individual does not want to use their own personal assets, to cover their care costs
The 5 main types of LTC insurance are:
Immediate needs
Deferred Care
Pre Funded
Care Cash Plan
Equity Release
Tell me about Immediate needs and are the benefits taxable?
Immediate needs:
For someone who already has a need for care. They must have failed one ADL or have some form of mental incapacity such as Alzheimer’s.
The person pays a lump sum to provider in exchange for a set amount of income for life (Works the same as an ANNUTIY)
The income is tax free if paid directly to care home
The income is taxable if paid directly to the individual…If paid directly it is taxed the same as a purchased life annuity (PLA). It is the following
The income is split into two components - a capital and an interest component
Capital -
Tax free because it is classed as a ‘return of capital’
Interest -
Taxable at the individual’s relevant rate of income tax. Classed as savings income.
The 5 main types of LTC insurance are:
Immediate needs
Deferred Care
Pre Funded
Care Cash Plan
Equity Release
Tell me about Deferred Care and are the benefits taxable?
Person pays lump sum but the income does not start to be paid immediately. Instead it starts after a few months or years.
This will suit an individual who has enough income and/or assets to pay for their initial care but needs something to kick in if required once these funds are used up.
It is a variation of an immediate needs policy but premiums are significantly cheaper.
Taxed in same way as immediate needs
The 5 main types of LTC insurance are:
Immediate needs
Deferred Care
Pre Funded
Care Cash Plan
Equity Release
Tell me about Pre Funded policies
There are two main types of pre funded policies. Why would someone opt for one over the other?
For individuals who do not currently have care needs but are concerned about the potential costs if they need care in the future. (opposite of immediate need policies basically)
This type of LTC policy has two types:
Traditional and Investment Linked
Traditional =
Benefits are paid if the policyholder is unable to carry out a minimum number of ADLs. The better the policy, the lower the number of ADL’s needed for the benefit to be payable. Disadvantage: if you dont claim you will never make a return on your premiums. Investment linked policies fix this issue.
Investment Linked -
Combines a Single premium investment bond (where the investment is built up) and a traditional LTC policy as mentioned above. Advantages and disadvantages are: SEE IMAGE
Example of Traditional Pre-funded polices
Example of Investment Linked Prefunded policies
The 5 main types of LTC insurance are:
Immediate needs
Deferred Care
Pre Funded
Care Cash Plan
Equity Release
Tell me about Care Cash Plans
A care cash plan is a hybrid (combination) policy. It pays out an income for a pre-set period (so not an ‘income for life’ like other LTC policies), and/or a cash lump sum.
Pays out if the individual either fails a certain number of ADLs, or develops a physical or mental illness associated with ageing such as:
Alzheimer’s disease
Senile dementia
Parkinson’s disease
READ OF THE EQUITY RELEASE SECTION. DIDNT MAKE ANY FLASHCARDS BECAUSE I KNOW
HERE ARE THE ADVANATGES AND DISADVANTAGES OF THE DIFFERENT TYPES OF LIFETIME MORTGAGE. SEE IMAGE
READ OF THE EQUITY RELEASE SECTION. DIDNT MAKE ANY FLASHCARDS . PART 2 REGARDING HOME REVERSION
Advantages/disadvantages of homer reversion plans
What are ‘undervalue transfers’ in relation to Home Reversion Plans?
The lump sum generated from home reversion plans will be lower than the actual value of the property so it is known as an undervalue transfer
What is the main difference between home reversion plans and lifetime mortgages?
QUESTION
Lump sums generated through equity release are not considered when means testing
True or false
False, it is.
Uncashed investment bonds are not considered when means testing
TRUE
Someone could have an investment bond of 200k and it wont be considered in means testing which is one of the benefits of investment bonds
Summary of the different types of policies
An individual may have a variety of options open to them, without having to consider formal LTC policies. Tell me a few
using savings
using pensions
selling assets
using property (renting it out for instance)
accelerated death benefits. (available on life or critical illness policies. Pays out if less than 12 months to live.
viatical settlements.
(where a life policy is sold to a viatical company whilst the policy owner is still alive to generate a cash lump sum.
An individual may has a variety of options open to them to fund their LTC, without having to consider formal LTC policies. For example, using their savings, pension etc
One option is a viatical settlements . What is this?
Viatical settlements are where a policy owner sells their life policy to a viatical company whilst still alive to generate a cash lump sum which could be used to fund care needs, or anything else
A permanent deed of assignment is used.
The assured (owner of the policy) becomes the viatical company, but the life assured would stay the same.
Normally used where the policyholder is terminally ill
NOTE: the life office must be UK based and a major insurer to offer this service
When determining LTC needs, what do advisors assess?
This process first identifies any funding gap considering their needs and wants and if there is, what is available to the individual
Summary of how advisors assess LTC needs
What are the advantages/disadvantages of a LTC policy
Its advantages include:
providing either regular income or a cash lump sum, directly into the hands of the policyholder
this can be used to pay for LTC costs, giving the individual greater choice
it also provides peace of mind that they will be looked after, if required, in their old age
Again, it is not without its disadvantages such as:
premiums can be expensive, especially for individuals who constitute a higher risk
some types of plan may not be readily available in the market, such as pre-funded policies
individuals will require specialist advice, which will mean incurring fees and costs
personal assets may be utilised for LTC, leaving less to be passed onto loved ones
Tell me about POA
What is a deed of revocation
Allows a donor to revoke the POA
READ OVER 8.5 WHICH TALKS ABOUT POA
An LPA must be signed and dated by the donor, the attorney(s) and a witness. There can also be another couple of individuals involved in this process, usually to protect the donor.
These are: WHO
A named person -
This individual is selected by the donor and is notified when the LPA is registered with the OPG. They have the right to object to this registration if they feel the donor is being taken advantage of.
Certificate provider -
There is a ‘part B certificate’ form within an LPA document. This confirms that the donor understands the LPA and has not been put under any pressure to have it drawn up. Again, it is protection for the donor.
How can an LPA be revoked?
Revoking an LPA means it is cancelled.
There are a variety of different ways this can occur, including:
donor revokes the power
donor or attorney dies
attorney loses mental capacity
donor or attorney is declared bankrupt.
What happens if no POA has been set up and the person losses mental capacity?
A Deputyship Order must be sent to the Court of Protection.
This Order gives restricted powers to a Deputy. it is better than nothing
What are council tax precepts?
It allows local councils to raise extra funds to meet the costs of social care, through additional council tax charges.
This extra is known as a ‘precept’.
For 2023/24 it is 3%
John is a higher rate taxpayer. £20,000 has been released from his pre-funded policy and paid direct to his care home. How much tax will be due?
None.
£4,000.
£8,000.
£9,000.
None.
No tax is due on a payment from a pre-funded policy, whoever it is made to.
Edie has lost mental capacity but has a Lasting Power of Attorney. This must be registered with…
Office of the Public Guardian.
Court of Protection.
Financial Ombudsman.
Financial Conduct Authority.
Office of the Public Guardian.
Edie’s loss of mental capacity will need to be registered with the Office of the Public Guardian. This will activate the LPA and allow the attorneys to make decisions on behalf of Edie. (LPA can be activated before loss of capacity too)
Robert needs long term care but wants to get some state help. He currently has £10,000 in a deposit account, £7,000 in ISAs and £10,000 in an investment bond. What could he do?
There is nothing Robert can do, as he will not get any assistance.
Gift the deposit and bond to family members.
Cash in his ISAs and bond and then claim funding.
Robert does not have to do anything, as he can claim funding.
Robert does not have to do anything, as he can claim funding.
Robert’s investment bond does not count as an assessable asset. He will qualify for some funding as he has assets of £17,000, so between the two thresholds. (LOOK AT THE SAVINGS MEANS TESTING IF UNSURE)
Jackie is 76, in poor health and requires residential care. How does the government assess individuals for long term care?
They don’t – income and capital are ignored.
A combination of income and capital means testing.
Through income means testing only.
Through capital means testing only.
Jackie is 76, in poor health and requires residential care. How does the government assess individuals for long term care?
They don’t – income and capital are ignored.
A combination of income and capital means testing.
Through income means testing only.
Through capital means testing only.
A combination of income and capital means testing.
Jackie will have both her income and capital taken into account in a means testing exercise.
Samuel has an immediate needs annuity. Income is paid direct to him and he then pays the care home he is a resident of. If he is a basic rate taxpayer how will this income be taxed?
It will be paid tax-free.
It will be paid gross, but tax is due via self-assessment.
It will be paid net of basic rate tax.
It will be taxed as a purchased life annuity
It will be taxed as a purchased life annuity.
The income will be taxed as a PLA – part tax-free, part taxed as savings income.
note: The income is tax free if paid directly to care home
