With the cost of care increasing and new reforms meaning a cap on the cost of care, the insurance industry has been accused of being slow to react. However Vitality is an insurer that is rising to the challenge with the introduction of Vitality Lifestyle Care Cover. Deputy CEO of VitalityLife, Deepak Jobanputra, talks about the issue and the opportunity for advisers.
CARE AND THE GOVERNMENT
Barely a few days goes by without another headline on how the population is ageing or how the demand for care is set to soar. In fact the number of over 85’s is set to double in just the next 20 years, and already there are already 3 million people in the UK either in a care home or receiving some form of help or support in their own home, perhaps from friends and relatives.
To address the expected future increase in costs the government commissioned Sir Andrew Dilnot to look at different funding options for social care. The Dilnot commission has since reported back to government, and many of the recommendations have been accepted including a cap on care costs, which is due to come into effect in April as part of the Care Act 2014. What does the cap mean?
The cap on care costs of £72,000 is designed to limit the amount that individuals will need to contribute towards their own care costs, and help people better plan for the future.
This is a welcome move forward in helping to manage care costs. However there are a few points to clarify around the cap. It only applies to the costs of providing care itself. But the costs of food and accommodation accrued during a care home stay would not be capped, so they still need to be funded somehow. Also the costs of care themselves will vary between local authority, meaning that if you live in an area where the rates are lower, then it may take several years before you even reach the cap of £72,000.
WILL YOUR CLIENTS BENEFIT FROM THE CAP?
When someone goes into residential care, they are expected to be there on average for 3 years, meaning few will actually spend as much as £72,000 in pure care fees during their lifetimes. In fact, the Institute and Faculty of Actuaries have calculated that just 8% of men and 15% of women over 65 will benefit from this cap. This means many of us will have to dip into savings or have to consider selling our home to pay for some or all of our care if we do not qualify for any other means tested support from the local authorities.
With about 10% expected to face a total care bill (including food and accommodation) of over £100,000, this is not an insignificant financial hurdle, and the question is how we can help people to pay for these costs?
HOW CAN THE INSURANCE INDUSTRY HELP?
There are already products like Equity Release and Immediate Needs Annuities which can help pay for care at the point of need. But many in the industry will agree the bigger challenge is trying to pre-fund some of our future care needs.
This is where the insurance industry comes in. I’m proud to say that Vitality is the first provider to launch a new solution in the UK, allowing people to draw down on their Whole of Life cover to help fund some of their later life needs. A number of other providers are also expected to bring something similar to market, demonstrating that the insurance industry is indeed beginning to rise to the challenge on care.
IS THIS APPROACH ENOUGH TO SOLVE THE CARE CRISIS?
This product approach won’t indemnify people against all their potential care costs like a traditional Long-Term Care product. But we believe it provides a very affordable way to help fund some of these future costs by providing a lump sum that can help pay for some modifications to your home or pay for some help so that you can remain independent for longer – which we know is a priority for many people thinking about their later life needs. What’s more this solution means that even if you don’t need care, the product is guaranteed to payout on death, ensuring a payout is certain at some point.
Alongside these product solutions there is also a need for greater education. To get people thinking about how they will fund these care costs later in life, insurers need to work with government to raise awareness, and support financial advisers in having these conversations.
IS THIS REALLY AN OPPORTUNITY FOR ADVISERS?
I believe care needs are a critical consideration in financial planning. With the costs of care increasingly falling on individuals, they could have a serious impact on a client’s savings and how much they leave behind to their dependents. Certainly I hope these new products help advisers to open up a conversation about care needs by exploring if clients would like the flexibility to draw down on their Whole of Life cover if they become less able to look after themselves. In fact a new poll from the Protection Review suggests that many advisers agree, with 75% believing these new later life products will help grow the market.
The industry definitely has more work to do in raising awareness on care, and helping to plan for these needs using new products and more advice, but it feels like we are making some real progress even before the governments new Care Act has come into effect. Key to our success will be government, insurers and advisers working together, and perhaps maybe we can make a real difference in solving one of the greatest challenges in our society today.