ST C 5

Question 1

1. List three typical features of pre-funded LTC products.

Answer 1

• waiting or deferred periods;
• limited payment periods;
• care support services;
• assistive devices; and
• provision for inflation.

Question 2

2. What is the tax position of a long term care bonds?

Answer 2

The tax position of long term care bonds is as follows:
• No taxation on the care benefit paid.
• Care support services and assistive devices are also paid tax free.
• Any ‘income’ taken is technically a withdrawal of the capital and there is no immediate tax charge if these are 5% or less of the amount invested. The tax position can become complicated for higher rate taxpayers.

Question 3

3. Briefly explain what a deferred care plan is. Why are they potentially attractive?

Answer 3

Deferred care plans are plans where there is a care need at the outset but the care benefit is not paid immediately. These plans have the following attractions:

• The cost of the annuity to provide the cam is substantially reduced. The greater the deferred period, the greater the saving.
• For individuals who are self-funding their care costs, the annuity removes some of the uncertainty and anxiety they may have about living beyond their ability to self­ fund their care.

Question 4

4. What is the taxation position of an INA and deferred care plan when the annuity is paid directly to the individual?

Answer 4

Where the annuity is paid to the individual, the income will be treated as part return of capital and part savings income. The portion treated as capital is paid free of tax and the income element is taxed as savings income at 20% (higher rate taxpayers will be liable to an additional 20% and additional rate taxpayers an extra 25%).

Question 5

5. State six ADLs that are typically used by insurers.

Answer 5

• washing;
• dressing;
• mobility;
• transfer;
• feeding; and
• toileting.

Question 6

What is the purpose of the Equity Release Council?

Answer 6

The Equity Release Council is a trade body which sets and promotes consistent standards and safeguards for bodies that are· involved with equity release plans.