Care fees planning is not the easiest option for financial advisers – even for those who specialise in the sector. The financial services industry has not provided much choice of financial products, and those that are available often fall short.
In the last year or so a few companies have tried to offer an option tied to whole of life insurance, but this has been met with mixed success and one company withdrew the product, citing its launch of a pilot.
The general plan is to offer a whole of life policy with the possibility of cashing in part of it early, if one needs to go into a care home and is no longer independent.
At present AIG and VitalityLife offer this product; Zurich Life withdrew it last year.
Under Zurich's product a client could take out a normal whole of life product, which at no extra cost would offer a later life Flexible Option. This meant that after the age of 70, the client could cash in 70 per cent of the sum assured if they needed it, in the case of suffering from a medical infirmity of unable to do three out of six everyday activities, such as washing and dressing and getting in and out of bed.
Peter Hamilton, head of retail partnerships at Zurich, said: "It was an existing whole of life plan, and it added an extra benefit to it, so that if a client needs to go into care based on physical and mental capabilities, we would pay a discounted sum assured early.
However, Zurich paused the distribution of this product, as there was not much take-up of it, although those who have taken it up can still use the option. Mr Hamilton said: "We may bring it back, we'll see how the market develops."
Vitality offers its lifestyle care cover as a rider on its whole of life insurance, which adds 25 per cent to 35 per cent to its normal premiums.
While Vitality and AIG still offer the products, the marketing has been somewhat subdued, and they still operate below the radar. Advisers specialising in the field question whether they really offer and option.
Jeremy Over, director of Later Life Choices, said: "The problem is the people who you speak to who are in retirement and worried about future care needs, the premiums just aren't very affordable.Very rich clients will want to self insure and can't be bothered and the ones who really need it can't afford it. It's hard to justify the recommendation of a whole of life policy, because it's an indeterminate time
"In the face of it, it's great to fill the gap but in reality the client is paying for something that may never happen. At what point in your life do you start talking about this? You're not going to get a 30-year-old who's building up their pension, and a 60-year-old will be wondering if they have enough of a pension to stop work. By the time someone is thinking about care, they need it."
Nikki Cave, managing director of Eldercare, said that premiums for a 60-year-old who wants to buy a £150,000 policy with Vitality would be paying £300 a month. She said: "At aged 85 you would have spent £85,000 on premiums
"The sort of person buying whole of life cover is buying it for a reason, and [activating this rider] would leave you with no life cover. Are you trying to leave some money for your children?"
The situation is not helped when the cost of care is unpredictable, not just because a client does not know when or how long they will need care, but also because of how unpredictable the political situation is with regard to cap on care fees. It was proposed that there should be a cap on care costs of £72,000, and this was due to come into effect in April last year, but has been pushed back to April 2020.
Ron Wheatcroft, technical manager at Swiss Re, said: "I imagine the government will be looking to do more consultation because things will have changed in three to four years time and the cap may be increased."
Melanie Tringham is features editor of Financial Adviser
