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Long-term care and later life insurance


Publication date:

01 November 2016

Last updated:

08 November 2018

Long-term care insurance (LTCI) was introduced in the UK in 1991. Insurance can be taken out in case care is needed in the future (pre-funded - not currently actively marketed) or only once it is needed (point of need or immediate care). Factsheet last updated by Andy Couchman November 2016.



Long-term care insurance (LTCI) was introduced in the UK in 1991 but sales have remained low. Insurance can be taken out in case care is needed in the future (pre-funded - not currently actively marketed) or only once it is needed (point of need or immediate care). Later life policies can pay a cash lump sum on needing long term care too.  Various types of policy are or have been available, and pre-funded LTCI plans could have a regular or single premium. A typical benefit of pre-funded policies is a care counselling service that helps customers and their families, deal with needing to arrange care. Today, planning for long-term care is more likely to involve more generic financial services products other than specific long term care insurance.


Long-term care insurance (LTCI) is designed to pay out a series of sums of money, usually each month, when a person (usually an elderly person) needs long-term care. Long-term care is needed when someone is unable to look after themselves, e.g. following a stroke or if they become very frail. These sums are used to buy care either in the home or in a residential care home. Most policies are designed to pay out for as long as the person needing care lives. Later life policies are designed to provide a cash lump sum on diagnosis of needing long term care.

LTCI is a small market in the UK with less than 36,000 policies in force (ABI). In France, however, five million people have LTCI, as do 8.1 million Americans (Duporque 2011). In other countries too, LTCI is a much more significant market than it is in the UK.

Rather than taking out insurance, many people do not plan for long-term care fees at all or would use their investments and/or the value of their own home should the need for care arise in future. Financial products other than specific long-term care insurance are more likely to be used.

Recent developments

  • Dilnot proposes changes to LTC funding.
  • Government  responds to Dilnot proposals and introduces the Care Act 2014.
  • Later life policies offer an alternative funding mechanismDilnot proposes changes to LTC funding.

The need for long-term care

At present (based on 2014 data), there are around 1.5m people in the UK aged 85 or over. Over the next 25 years, that figure is projected to more than double, to 3.6m.  For every person of working age, there was 0.3104 person of pensionable age in 2014. By 2039, that figure is projected to rise to 0.3696. The increase in this ratio means that relatively fewer people will be available to fund helping older people with care fees - one reason why state help with fees is always likely to be lower than what some people might like (see table below).

United Kingdom population projections 2014-2039

Age band










85 and over





Old age dependency ratio  





Source: National Population Projections: 2014-based Statistical Bulletin, ONS October 2015

Prevalence of poor health and disability both tend to rise with age. Although the trend in recent years has been not to move to a care home if care is needed (especially in the early stages), many more people now need care, and much of that is now delivered at home. Care at home can even be more expensive than care in a  residential care home and continued restraints on public spending mean more people are expected to fund their own care.

By 2051, it is estimated that the numbers of older people in care homes and hospitals will rise from less than half a million today to 1.13m, while the number of home care hours could increase from 2m a week now to over 4.8m by 2051 (Joseph Rowntree Foundation, 2004). One general trend is towards more care at home: this is often the preferred option for older people, although it is not necessarily less expensive than care in a home and, if extensive care is required, can even be more costly.

These changing demographics - the ageing population - indicate that the underlying need for financial products to help with long-term care fees is likely to increase in future. To date however, demand for such products has been lower than anticipated, partly because many people prefer to wait to see whether care will ever be needed and partly because any insurance-based solution is likely to be perceived as being expensive - especially if care is not actually needed in future.

The Dilnot Commission reported in December 2010 that the average cost of an older adult residential and nursing care home place is £26,000 a year, while home care costs, on average, £8,000 a year. Since then, costs have increased further. Data by analysts LaingBuisson found that in 2014/15, the average nursing home cost self-funding residents between £631 and £920 a week (£32,800 - £37,800 a year), depending on region. Care at home can cost around £15 an hour on average, so 14 hours care a week would cost £11,000 a year, according to the Money Advice Service. Many people pay more, so funding long-term care over a long period can be both very costly and very uncertain (because it can be difficult to estimate how long care may be needed for). The average length of stay in residential care is believed to be around two years but for some conditions e.g. dementia, the need for care can be considerable and with little change to life expectancy.

Although the State can and does provide help, much of this is means tested and in October 2016, Age UK reported that two in five (41%) of all residents in UK independent care homes now pay for their own care - up from 130,000 in 2005 to 167,000 in 2014). The Dilnot Commission reported in December 2010 that the average cost of an older adult residential and nursing care home place is £26,000 a year, while home care costs, on average, £8,000 a year. Many people pay fees substantially in excess of these, so funding long-term care over a long period can be both very costly and very uncertain (because it can be difficult to estimate how long care may be needed for). The average length of stay in residential care is believed to be around two years but for some conditions e.g. dementia, the need for care can be considerable and with little change to life expectancy. 

State provision

From its establishment in 1948, funding long-term care has never been part of the NHS's responsibilities, although prior to 1993 geriatric wards in some NHS hospitals effectively provided long-term care. The NHS is responsible for ongoing medical care, but determining what is medical care and what is social care can be complex. Since June 2007 a change in rules has seen greater clarity in what is still a very complex area.

Since 1993 (under the NHS Act 1990), local authorities have had responsibility for assessing care needs (and paying for them subject to means testing). The exception to this is in Scotland, where a spouse (but no other relative) can be asked to contribute towards care costs. The 2014 Care Act sets out what state and local authority help is available and, as this is an enabling act, it provides the framework for changes in future too.

The 1999 Royal Commission on Long Term Care recommended free personal and nursing care but this has only been adopted in Scotland. In England, a non-means-tested payment towards the cost of nursing care is paid. Originally this had three levels, depending on the need for nursing care, but since October 2007 only one band applies. The situation is also different in Wales and Northern Ireland.

Currently, (2016/17) government help with care fees depends on where you live:

  • In England, those needing care get £112 a week (more if they have a high level of need and were assessed before October 2007), with figures usually reviewed by the local authority every year, although they have not been increased in recent years) .
  • In Wales, the local health board usually pays around £148.01 a week, although each Welsh local health board can set its own figure.
  • In Northern Ireland, those needing care receive up to £100 a week from their local health and social care trust.
  • In Scotland, the figure is £78 a week for nursing care from the local council and £171 a week for personal care, but those needing care are not able to claim either attendance allowance or the care component of disability living allowance.

The State also allows people to keep a small amount each week for personal expenses.

Despite improved guidance, it can still be difficult to work out how much help someone needing care is able to claim, and much depends on where they live and their income and other assets. Anti-avoidance measures also exist to stop, for example, someone giving away their assets just before they move into care. This 'deprivation of assets' rule can look back at past transactions too and effectively reverse any gifts made where the intention was to deliberately deprive the individual of assets in order to claim benefits.

Long-term care remains in the political melting pot but  making private provision makes sense for many people - especially as means testing results in anyone  living in England and Northern Ireland in 2016/17 with assets of more than £23,250  and possibly including the value of their home, not usually getting financial help from their local authority. Those whose assets fall between £14,250 and £23,250 (2016/17) may get help, but on a sliding scale. The respective figures for those in Scotland are £16,250 and £26,250and for Wales applies to anyone with assets of £24,000 or more.

Long-term care benefits are complex and vary considerably depending on where people live, so specialist advice should always be taken. A good place to start is the Age UK website.

In July 2009, the then government published a Green Paper, Shaping the Future of Care Together, which consulted on a number of aspects of care provision in England, including funding. The paper set out a number of options but the three favoured options were:

  • Partnership. The government would pay a quarter or a third of costs, with the balance being means tested or paid by the person needing care.
  • Insurance. Either state run or in partnership with the private sector, but with a similar level of state help as partnership.
  • Comprehensive. Everyone over retirement age would be required to pay into a state insurance scheme. This might require a payment of £17-20,000 to cover a typical £30,000 of care spend.

In order to fund such schemes, people may use equity release so that instead of paying out of their income or capital, they create a lien against their property, repayable on death.

While the Green Paper put forward some interesting ideas, a change of government inevitably led to different ideas.

In July 2010 a new independent commission, under academic and economist Andrew (now Sir Andrew)  Dilnot, was set up to recommend an affordable and sustainable system of funding long term care. The commission published its findings in July 2011.

The Commission's main recommendations included:

  1. Capping the lifetime contribution to adult social care costs that any individual needs to make at between £25,000 and £50,000, with a suggestion that £35,000 would be the right figure. Currently, costs are uncapped. Younger people would effectively have a zero maximum contribution, with a sliding scale from age 40 to 65.
  2. Means testing should continue and the current £23,500 threshold in England (the report did not make any recommendations about other countries in the UK, all of which have different rules on care funding as noted above) should should be increased to £100,000.
  3. Universal disability benefits for people of all ages should continue, but benefits should be better aligned and Attendance Allowance should be renamed, as people did not understand the term, underclaimed for it, and did not always use it for the purpose intended.
  4. People should be expected to contribute a standard amount to cover their general living costs as otherwise those moving into residential care gain an advantage relative to those having domiciliary care (care in their own home). That figure should be set at between £7,000 and £10,000 a year.
  5. Eligibility criteria should be on a standardised national basis and be portable (i.e. would continue, until reassessment if, for example, someone moves to be closer to their children). At present, each local authority can and does adopt its own rules.
  6. A new social care statute (as recommended by the Law Commission) should place duties on local authorities to give information, advice and assistance services in their area and stimulate and shape the market for services. vices. This has now been introduced. 
  7. The Government should set up an awareness campaign and develop a major new information and advice strategy, produced in conjunction with charities, local government and the financial services sector.

Under the report's proposals, no one would spend more than 30% of their assets on care costs. That contrasts to the present system , where in some cases, someone could spend over 80% of their assets on care (typically, those with assets of £100-200K).

The report pointed out that 1 in 10 people, at age 65, faced future lifetime care costs of more than £100,000 (based on modelling work carried out for the Commission by ESHCRU (at the University of York, LSE and University of Kent), adding that 'data on the costs of social care is poor'.

The Commission also estimated that a quarter of people aged 65 will need to spend very little on care over the rest of their lives, and half could expect care costs of up to £20,000 but it added: 'some could spend hundreds of thousands of pounds. There is no way of predicting in advance what the costs might be for any one person'.

In July 2012, the government responded by publishing a White Paper called Caring for our future: reforming care and support. This broadly supported the Dilnot proposals, and led to the Care Act 2014 which is gradually changing the care funding landscape, albeit not to the extent recommended by Dilnot.

The Dilnot principle of a partnership between the individual and the State has generally been accepted but the cost of the State paying for all long term care is likely to remain prohibitive. Nevertheless Dilnot is leading to more State help, with significant changes  planned for introduction from 2020.

As at October 2016, the current £14,250 lower threshold in England is expected to rise to £72,000 and the upper threshold to £118,500. However, these figures are not guaranteed and could be changed.

The ABI (Association of British Insurers) has published various papers on LTC including a 2014 statement of intent on social care reform, in which the ABI and the government (actually the Department of Health) set out the steps needed to help people understand their long term care costs and plan to ensure adequate funding. In January 2015 an update was published which recognised that 'it is important to recognise that it will take time for this market to develop'.

Other papers have included A Sustainable Future for Long Term Care (2010), which set out the role of the insurance industry in providing expertise and products and how the industry has the potential to play a major role. That was followed by A Brief Guide to Long Term Care Insurance, which explained the main types of LTCI cover and the need for them and Consumer attitudes towards long-term care (2011), which published research findings on the public's views and concerns. The website will report further developments as they arise.

Law and regulation

Most LTCI products available in the UK are written as long-term insurance policies by UK-regulated insurers. Insofar as such products constitute "designated investments" (LTCI investment bonds and "immediate care" annuities) their sale and marketing is regulated by the Financial Conduct Authority (FCA). Prior to November 2004 he sale and marketing of LTCI pure protection products fell outside the remit of the regulator. Since then, however, the sale and marketing of all LTCI products has been regulated. As this is a product that is typically sold to elderly and potentially vulnerable consumers, special rules apply to the marketing of all LTCI policies:

  • All LTCI advisers and supervisors are subject to enhanced training and competence requirements including a specific LTCI examination. All existing advisers already deemed competent to advise on LTCI now also need to pass this exam.
  • All LTCI sales are subject to special rules. These include additional pre- and post-sale information and risk warnings to help consumers make informed choices about the type of product and amount of cover they need.
  • New claims-handling rules have increased consumer protection at the point of claim, when consumers may be particularly vulnerable.
  • All LTCI products now come under the compulsory jurisdiction of the Financial Ombudsman Service (FOS) and the Financial Services Compensation Scheme.

In 2007 the FSA consulted on changes to its regulatory rule books as part of its plans to move towards more principles-based regulation. Changes to the rule books were introduced in January 2008.

Prior to November 2004, the sale and marketing of LTCI products issued by Association of British Insurers (ABI) member companies was subject to an ABI code of practice. In effect, this required providers to treat LTCI as though it were regulated and to consider whether the intermediary was competent to sell LTCI.

Some LTCI business has been written by offshore insurers. Such policies do not enjoy the legal protection that UK-based policies do, although most such policies are marketed by subsidiaries of well-known insurers that are regulated in the UK. These policies are usually written under trust in order to secure inheritance tax advantages.

Later life policies - those where a lump sum payment is made on diagnosis (similar to the benefit provided under a critical illness insurance policy) are regulated in the same way as other long term protection only policies and are not subject to the higher levels of regulation that apply to LTCI.

The wider financial services sector also offers products that can be used in long term care planning. One of the main ones is equity release, where a (typically) older person mortgages (lifetime loan) or sells part or all of their home (home reversion) and takes a lump sum or draws down sums of money as required. Such products can, in turn, be used to fund an annuity or other product that can pay towards care costs.

When reviewing long-term care planning, it is recommended to consider having a lasting power of attorney (LPA). This (and its forerunner the enduring power of attorney (EPA)) allows a nominated individual to act on behalf of the person setting up the LPA, should they no longer be able to manage their own affairs. In the absence of an LPA it may be difficult for contracts to be entered into or papers signed without the authorisation of the courts - potentially a complex, time-consuming and expensive exercise. Independent legal advice should always be sought before setting up an LPA, or making changes to an EPA. In addition, ensuring your will is up-to-date and still reflects your wishes, and ensuring your family knows about your plans and intentions is also important and can help avoid disputes arising later.

LTCI benefits are not usually subject to income tax or capital gains tax (but any associated investment product may be). Tax rules can be complex and can change at any time so professional advice should be taken where appropriate or if in any doubt.

Insurance companies

Most LTCI insurers are UK based and authorised by the FCA and PRA (Prudential Regulation Authority). In some cases, usually to secure tax advantages, an insurer may be based offshore. Care should always be exercised when choosing to insure with any offshore insurer, as the legal protection outside the UK may not be as great. Factors to take into account include:

  • Who ultimately owns the insurer and could that change in future?
  • What legal jurisdiction is the insurer based in (some jurisdictions have tighter legal controls than others)?
  • What legal remedies (including any arbitration facilities) would apply if a dispute arose?
  • What is the track record and history of the insurer?

Most LTCI business is sold by independent financial advisers (IFAs), many of whom are members of the PFS.

Types of insurance

Insurance to help pay care costs is divided into three main categories:

  • Pre-funded. This subdivides into pure protection and investment linked.
  • Point of need, also known as "immediate care".
  • Later life policies


By late 2016, no major insurer was still actively marketing prefunded LTCI, although existing policies still exist and some could be changed or increased in future, so the following information may still be relevant. It is also possible that new LTCI products will be developed and an understanding of previous generation products can help assess any new offerings.

Pure protection

Pure protection policies are taken out before care is needed and pay out a monthly sum should long-term care be needed at some point in the future. Benefit is then paid for up to a fixed term (often three to five years) or until death. Payment stops if there is no longer a need for care. Benefit may be paid to the insured or direct to the care provider.

Premiums are paid on a regular (monthly or annual premium) or single-premium basis.

In the event of death or cancellation, usually no benefit is payable.

Investment linked

Investment-linked policies combine the elements of single-premium investment bonds and protection insurance. A typical arrangement may involve a single-premium investment where the objective is growth over time. From the investment fund, regular deductions are taken to fund the protection element of the arrangement. If long term care is needed, the protection element may pay the whole benefit or part only, with withdrawals from the investment element making up the balance.

In the case of offshore funds, the bond may be written in trust to secure inheritance tax advantages.

Depending on the split between the different elements of the arrangement it may be possible, if growth on the investment element exceeds deductions for the protection element, for the whole investment to grow while still enjoying the benefit of the protection. This will not be guaranteed and will be subject to a range of factors, the most important of which is the actual growth achieved in the underlying investment fund(s).

Unsettled investment markets resulted in funding concerns on some policies (especially if the investment element could quickly fall as sums are taken out to pay for the protection element). As a result most insurers no longer offer this type of arrangement.

Point of need

One disadvantage of pre-funded LTCI is that (as with all protection insurance) if no claim is made, premiums paid may be perceived as being lost or "wasted". Point-of-need policies avoid that because they are only taken out once the need for care has arisen.

At that point the key financial issue is how long the insured will live, as care fees will generally be payable until they die. If they live longer than expected, there may be a considerable financial drain on their estate.

With a point-of-need policy, a single premium is paid into what is effectively an enhanced (or impaired-life) annuity (although for technical reasons, the policy may not necessarily be written as an annuity). This takes account of any reduction in the life expectancy of the insured. The insurer pays a regular monthly benefit, usually direct to the care provider, and takes the risk that the insured will live longer than expected. The insured takes the risk that they will die before the insurer expects them to and so will have obtained poor value from their investment. It may be possible to guarantee that payments will continue for a predetermined period even if the insured dies, but this will reduce the monthly benefit otherwise payable.

As an alternative to a point-of-need policy, a customer may choose to have an impaired-life or enhanced annuity. Such products provide a higher benefit or income, reflecting the insured's shorter life expectancy. However, some conditions, such as dementia, may lead to a high or growing need for care but may not necessarily lead to a shorter life expectancy.

Later life

In 2007, one insurer launched a product that paid a cash lump sum on diagnosis of Alzheimer's disease, motor neurone disease, Parkinson's disease or on the insured failing three out of five activities of daily living. These are all conditions that can lead to a need for long-term care. In effect, the product is a cross between critical illness insurance and long-term care insurance.

Since then other insurers have launched later life options where typically, the customer adds a later life option to a whole of life critical illness insurance policy at outset or later. Options available include:

  • A no cost option is included for customers under age 65 and pays out a later life benefit if diagnosed as needing long term care after age 70. The benefit pays 70% of the policy's sum insured after which the policy ceases.
  • The customer adds a later life option at outset and pays a higher premium to get the benefit.
  • A later life benefit is added, at extra cost. If the customer is diagnosed with Alzheimer's disease or Parkinson's disease or some other conditions, 20% of the policy's sum insured is paid out as a partial payment. For other long term care needs, 100% of the sum insured may be payable.

The market is likely to develop further and new policies are usually reviewed by Protection Review at (under 'Product type in the Search box click 'Later Life').

Other solutions

Financial advisers often use other tools for long-term care financial planning too. The main ones are outlined below.

Financial advisers, charities that represent older people (or those with a particular medical condition) and independent care counselling services may also provide specialist help and advice to people needing long-term care and their families. This can range from help with official forms to advising on choice of a care home or care package or making subsequent changes to that as needs change.

Lifetime mortgages or equity release

Under a lifetime mortgage or equity release scheme the insured's property is mortgaged or remortgaged (a remortgages is where one lender is replaced with another, perhaps to secure better terms or to increase borrowing for example). The proceeds can then be used to buy an annuity that then funds a prefunded policy or pays fees directly. Lifetime mortgages may be pre-packaged or assembled to create the benefits desired from a range of products.

Alternatively a home reversion scheme may be used to raise capital whereby the home is sold to a third party (the scheme provider) who allows the insured to continue to live there until he or she dies or needs permanent residential care away from their home. The important point to note about home reversion schemes is that the person needing care is no longer the owner of the property. This means they need the permission of the scheme provider to move home or to change the property in any way. They may also lose out on some or all future growth in value of the property. As an alternative to an annuity, the home or mortgage proceeds may be used to buy a single premium LTCI plan.

All mortgages are now regulated by the FCA and special rules apply to lifetime mortgages in order to protect potentially vulnerable older people. Home reversion plans have also been regulated since April 2007. The trade body the Equity Release Council ( represents the sector and has its own Code of Conduct, which was developed by its predecessor, SHIP, (Safe Home Income Plans).

Despite the fact that all lifetime mortgages and home reversions are now regulated by the FCA, consumers and their advisers still need to be careful and to understand fully the risks involved. For example, living much longer or much shorter than expected can have significant financial implications, while home reversion schemes may also mean losing out on possible future growth in property values. In order to protect all parties, the person taking out the scheme should always obtain independent legal advice before committing themselves to anything.

Rearranging existing investments

If someone has sufficient investment funds, it may only be necessary for them to rearrange their existing investment portfolio to generate the necessary income to pay care fees each month. Typically, this may involve moving out of growth-orientated funds into investments designed to provide secure and regular income.

Before needing care, older people should also consider setting up a lasting power of attorney. This and the earlier enduring power of attorney (see under Law and Regulation, above) allow a family member, for example, to act on behalf of an older person if he or she is no longer able to make financial decisions without help. This could be because of dementia or following a stroke, for example. Wills should also be up-to-date and safely stored and family members should be aware of the person's plans and wishes.

State benefits and inheritance tax implications

Any arrangement to pay long-term care fees may have implications for any state benefits to which the customer may be entitled. There may also be inheritance tax implications.

Customers should always take independent legal advice to ensure they understand fully the implications of such arrangements. Organisations such as age-associated charities and citizens advice bureaux may also be able to provide general or specialist advice, information and help.  For example, Age UK provides detailed information and factsheets online.

Characteristics of long-term care insurance

When is benefit paid?

Benefit is usually paid if a certain number of activities of daily living (ADLs) can no longer be performed, or on cognitive impairment. Most policies pay on the failure of two or three out of six ADLs. These are:

  • washing;
  • dressing;
  • feeding;
  • toileting (using the lavatory and controlling bowel and bladder function);
  • mobility (moving from room to room on level surfaces);
  • transferring (moving to or from a bed to a chair or wheelchair).

The ABI has drawn up model ADL definitions, which are used by some insurers, although most insurers are likely to use their own definitions and may not use the term ADLs at all.

Alternatively, the insurer may pay either a cash lump sum if the policyholder needs residential care or periodic payments for care at home. Instead of an ADL definition of disability, the insurer may require that the claimant needs the intervention of a registered nurse in planning, providing, delegating and supervising care, on at least a daily basis.

Geographic coverage

Policies usually pay out benefit to a provider of care in the UK. If the policy pays out direct to the insured, care may be bought in any country, subject to the insurer having adequate medical evidence to confirm the claim.


Most policies have exclusions and these may include:

  • alcohol or drug abuse;
  • criminal acts;
  • flying (except as a passenger in a commercially licensed aircraft);
  • hazardous sports and pastimes;
  • HIV/AIDS (except in certain circumstances, for example if contracted from a UK blood transfusion);
  • living abroad (outside the EU for more than 13 consecutive weeks in any 12 months);
  • self-inflicted injury;
  • unreasonable failure to follow medical advice;
  • war and civil commotion.

Benefit is usually subject to a three-month deferred period before a claim is paid, although help to pay for assistive devices may be paid out earlier than that.

Increasing benefits

Benefits can usually be increased without further medical evidence every year, usually in line with increases in average prices or earnings, sometimes subject to a maximum annual increase (often 10% a year).

In the case of point-of-need policies, there may be provision for the benefit level to increase if the need for care increases.

Group schemes

Although group business has been written it has not proved popular in the UK, although in France it has accounted for half of new LTCI business.

Product developments and innovation

LTCI was introduced in the UK in 1991. In the first half of the 1990s product development was often highly innovative. Since then, the pace of development has slowed dramatically, largely because sales failed to take off.

All major insurers pulled out of the prefunded market many years ago. There are four main reasons for the general lack of interest by insurers in pre-funded policies:

  • the difficulty of obtaining reinsurance terms and support;
  • the fact that many investment-linked plans did not work well due to stock market/investment volatility;
  • a lack of sales, which reflects both intermediaries' lack of interest in the market and consumers' preference not to commit to what may be perceived as expensive insurance that they may never claim on;
  • a concern that LTCI regulation adds another layer of costs for products that may already be unprofitable and that advisers may decide not to bother marketing such plans due to the higher training and competence requirements (many advisers have chosen not to pass the necessary examination to advise on LTCI contracts and so have effectively elected not to be in this market);
  • concern that regulation would become more onerous in future, especially as many customers are old and frail and so may be deemed vulnerable;concern that there is no political agreement on how much help the state should give people. Consequently, a change of government or even a change of policy within the government could result in changes that could adversely affect insurers' investment in the market.

The main market now is point-of-need plans and the growing later life market. The logic is that whilst the point-of-need solution may ultimately be more expensive for the one in four people who will, on average, need long-term care before they die, the three in four who do not need it will avoid having to pay for insurance that they end up not needing. The later life market is not yet fully established, either in terms of maximising sales or even on a typical generic product design.

Changes in state help from 2020 could, if adopted as expected, lead to new solutions being developed or evolved by the insurance industry. However, many insurers lost money on LTCI in the 1990s and so are cautious about investing heavily in a market that has yet to prove itself, especially as margins on other types of life and health insurance are typically low and so do not create large reserves to help fund such developments for any length of time.

Questions and answers

Q: Should the insured benefit be equal to the care fees that are payable now or that are likely to be payable in future?
A: No. Usually attendance allowance is payable and, depending on which country of the UK the insured is resident in, a contribution towards their personal and/or nursing care may be paid by the state, but only for care received in a registered care home. In addition, pension and other income may be used towards paying the cost of care. Typically, insurance is needed for half or less of the actual fees payable.

Q: Must care be received in a care home?
A: Usually no. Most people choose to have care at home if possible, while those already living in a residential care home may prefer to have treatment there rather than move to a nursing care home (which, by law, must provide round-the-clock nursing care if required).

Q: What is the advantage of having a care counselling service, which may be built into an LTCI policy?
A: Such services can help the insured and/or their family choose the right care package (in conjunction with the insured's medical advisors), negotiate terms with suppliers, advise on state and other benefits and generally provide help and advice at what can be a very difficult time for all concerned. Making decisions without advice and experience can be very time consuming and counselling may be expensive if obtained on a stand-alone basis. The need for care can also change over time so expert help can ensure the right care is always being provided.

Q: Do insurers negotiate better terms with care providers?
A: Usually no. In some cases, the fact that an individual has LTCI can reduce the financial risk to the care home owner and this may be reflected in lower fees or in any agreement with regard to future fee increases.  Some financial advisers will negotiate with the care home owner in such situations.

Q: What underwriting considerations apply on point-of-need LTCI?
A: Underwriters are most interested in the applicant's age, health (including mental health) and medical history. The applicant's life expectancy, rather than their health as such, is the key factor that will determine the underwriting decision. Usually this is assessed through a paramedical examination (undertaken by a nurse in the customer's own home and not involving potentially "embarrassing" actions such as undressing to be examined) or GP report. In the event of a non-standard risk, the underwriter may impose a higher premium or limit or refuse cover.

Q: Do some firms of financial advisers specialise on care fees planning?
A: Yes. Some of these will be members of an industry organisations such as the Society of Later Life Advisers or Symponia.

References and further information

Useful publications   

Caring for our future: reforming care and support. Government White Paper, London: Stationery Office, 2012.

Community Care Market news' Annual Survey of UK Local Authority Usual Costs 2015/16. Community Care Market news  (CCMn). LaingBuisson, 2016. See

The Dilnot Commission.  (the Dilnot website is no longer being updated).

Duporque, Etienne (2011). A Tale of Two Countries. Society of Actuaries. Available at Accessed 21/02/2017.

Factsheets on the Care Act 2014

Joseph Rowntree Foundation (2004). Future costs of long-term care for older people. findings. Available at Accessed 21 Feb 2017.

The Protection Review. Cheltenham, Gloucestershire: Protection Review Limited. Annual review of protection insurance markets, including LTCI.

Securing good care for older people: taking a long-term view. Wanless Social Care Review; author, Sir Derek Wanless. London: King's Fund, 2006.

Shaping the future of care together. London: Stationery Office, 2009.

With respect to old age: long term care - rights and responsibilities. Royal Commission on Long Term Care. London: Stationery Office, 1999.

The long-term care market and new LTCI policies are regularly reviewed in the insurance and financial services trade press. Many insurers include comprehensive technical information about their policies in their customer literature and in technical guides for intermediaries. This includes medical and "plain English" definitions of the conditions covered.

Useful websites  

This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), the CII group, local institute or Society, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the CII group, local institutes, or Societies.