Topic 6 - ISAs and Pensions Flashcards
Standalone Prefunded LTC
- Pays guaranteed sum if policyholder needs LTC in future.
- Aimed for those 50-75.
- No investment content.
- Paid for by regular or single and top up premiums.
- If regular premiums then guaranteed for set period of say 5 years then reviewable.
- May pay for care costs but also home adaptions, assistive devices, care counsellors, home help, day care.
- No tax relief on premiums. Benefits tax free.
- Benefits payable based on ability of carrying out ADLs
- Benefits payable after end of deferred period from weeks to 6 months.
- Benefit periods usually unlimited subject to maximum benefit per annum.
- Inflation protection can be included.
What factors will an underwriter normally consider when assessing a LTC policy?
- Greater ADLs unable to be performed, greater the care required and so higher benefit required.
- Risk factors underwriter must take account for when assessing LTC insurance:
- Functional status
- Cognitive factors
- Health & Medical status
- Family history
- Social & demographic factors
- Cognitive impairment is most difficutl to predict but one of major reasons for LTC claims.
- Two tests used for cognitive impairment. These are mini mental state examination and delays word recall.
- Mini mental state examination -
- Orientation - what town are we in.
- Memory - Can they repeat name of 3 objects
- Attention and calculation - Spell a word backwards
- Recall - Can they recall 3 objects named in memory test
- Mini mental state examination -
- Factors that can influence person’s independence and quality of life:
- Immobility
- Instability
- Incontinence
- Intellectual Impairment
- Common conditions
- Alzheimer’s Disease
- Stroke
- Heart Disease
- Heart Failure
- Cancer
- Diabetes
Access to Medical Records
The Access to Medical Reports Act 1988 allows people to see reports prepared for them.
Can request to see before sent to insurer to amend anything that is incorrect.
Medical practioner must hold report for 21 days before sending. Can also see 6 months after report sent.
Copies often requested by insurance because:
- Evidence to see claimaint cannot carry out ADLs
- State benefits or employer benefits like early retirement only payable after evidence shown
- Help show whether individual has mental capacity or not
The Access to Health Records Act 1990 - gives wider range of records to previous act to ‘health professionals’ such as dentists, psychologists etc.
Long Term Care Bonds
- Normally lump sum investment combined with regular LTC policy.
- Investment made into unit linked fund with units encashed regularly to pay for insurance policy.
- Benefits are normally not guaranteed and depend on investment returns.
- Past returns usually provided 7% - enough to cover the LTC premium and protect capital.
- Lifetime care asset protection bond provides similar benefits. Insurance and investment elements split in two, one to provide LTC benefits and other to return whole of investment to beneficiaries. Growth assumption is set at 6% before expenses. The death benefits can always be written in trust for the beneficiaries.
Immediate Needs Cover
- Immediate needs cover provides benefits for those needing home care or care home straight away.
- Normally in form of impaired life annuities - not good for dementia but things like parkinsons disease that would reduce a person’s life expectancy.
- Cover priced on size of premium required to meet specified level of care fees or provides guaranteed lifetime payment for specified lump sum.
- Cover is either priced on the size of premium required to meet a specified level of care fees or provides a guaranteed lifetime payment for a specified lump sum.
- Can protect captital against early death however normally expensive.
Deferred Care Plans
Aimed at those who cannot afford immediate needs cover or decide they will self-fund care costs initially
Those who self-fund, concern is varying life expectancies in care homes. Long life may run out of funds.
Plans help those decide how long they can or wish to pay for their own care by deferring for period.
If death within deferred period then no payments are made.
Deferred periods may be of 1-5 years.
Taxation - Immediate Needs Annuities
No tax relief available on premiums paid for immediate needs annuities.
Tax position depends on whether payment made to client or care provider.
If paid to client, benefit payments can be seen as part capital and part income. So benefits in this case are tax free for capital part and balance taxed as income. Income part is paid net of 20% income tax.
If paid directly to a registered care provider, the benefits will be paid tax free.
