UK: Financing long term care for elderly parents “an age old dilemma”
An article just published in the Financial Times (London) explains how the long term care insurance industry is changing in the UK, which faces a crisis similar to that developing in the US.
Back in the early 1990s the challenge of paying for long-term care for the elderly seemed (oddly) rather higher on the personal finance agenda than it is now. Ever alert to the possibility of a new business channel, several insurers launched “pre-funded” care insurance policies that would pay out if the owner ever needed to go into a care home.
Demand at that time was driven by anxieties about new rules introduced under the Health and Community Care Act, which came into force in 1993. The act forced people with savings or other assets to pay for their own long-term care costs (see box).An estimated 40,000 people bought the early pre-funded policies, which were aimed at people in their late 60s. Those who are still paying into their pre-funded insurance plans are now typically in their late 70s and early 80s. Most of them are likely to get a nasty shock in the coming months, as insurers are expected to hike their premiums.
From 1994 onwards, the biggest provider, PPP Lifetime Care (now part of Axa) introduced a “10-year” review clause on its policies. Other providers (which, at the peak of the “craze” for these deals included Bupa, Scottish Widows, and a long-term care investment bond from Scottish Amicable) also had 10-year “review” clauses.