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Social care crisis annuity products fix proposed

Social care crisis annuity products fix proposed

A group of academics at the Cass Business School has devised an insurance product specifically to protect against the costs of care in old age.

The products would attempt to address a "dramatic increase" in people expected to require care as a result of a quickly-ageing population - for whom no care insurance products currently exist.

The "disability-linked annuity product" would help pay for care by providing contributions towards future home or residential nursing care costs.

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The annuity would be structured in two levels.

The first, lower, annuity would kick in if the individual became "moderately incapacitated".

The second, higher, annuity would kick in if the individual became "severely incapacitated".

The policyholder would receive nothing, however, if they remained in "reasonably good health" - a necessary feature to ensure the product is affordable, the academics claimed.

The academics proposed assessing the policyholder’s state of health according to a set number of "activities of daily living", such as being unable to dress or feed oneself.

The “moderate” state could equate to the policyholder requiring care at home, while the “severe” state could equate to the policyholder needing nursing or residential care. 

The product designers suggested property wealth could be used to purchase the products, alongside more traditional forms of payment.

Professor Les Mayhew, co-author of the paper and a professor of statistics at Cass Business School, said, historically, people had been "very reluctant" to save for care, with the result that there were no products to meet this lack of demand.

“However, this is changing," he said. 

"People are increasingly becoming aware that they will need to pay for their own care and that the costs are potentially very large and unpredictable.

"Our research is aimed at providing a solution that will allow people to pay guaranteed premiums in a flexible manner, without unduly impacting on their standard of living, which will generate benefits that will contribute to future care costs and offer some inheritance protection.”

Professor Ben Rickayzena co-author of the paper and head of the Faculty of Actuarial Science and Insurance at Cass Business School, criticised the government for its "continued silence ... on this incredibly important issue".

“In the UK, the average pension pot is relatively small restricting the ability to pay upfront premiums, but many people have housing wealth which could be an alternative source of funds.

"As a result, while our product does not make the thought of needing long-term care any more pleasant, we believe that both the benefit structure of the product and the flexibility of the payment methods make the purchase of cover more attractive."

james.fernyhough@ft.com