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Abstract

This paper considers the market potential for privately financed long term care products in the UK. It finds that since the present market is undeveloped there is scope to increase the range of products available to suit people with different means and circumstances. Currently the UK spends about £19 billion on long term care (LTC) of which around a third is privately funded and two thirds publicly funded. The cost of informal care for older people is estimated to be worth £58 billion a year making a total of £77 billion. The paper finds that very few people can afford to pay for LTC out of their own pockets from income alone, but that this number is increased if savings are taken into account and significantly increased if housing wealth is included as well.

Insurance for LTC is normally considered to be part of the product mix usually associated with the private funding of LTC. However, as the US market demonstrates, LTC insurance products can be complex and difficult to understand and yet still not meet all needs, whilst US research suggests that policies are also over priced and unaffordable for many. In this paper the case is made for other kinds of products which produce an income at the point of need and therefore make a contribution towards LTC costs. These products include equity release, ‘top up insurance’, disability linked annuities, and immediate needs annuities. Although they may not cover all possible risks, and therefore all needs, they would bring much needed new money into LTC as well as lead to an increase in personal responsibility.

With large numbers of older people on very low incomes not everybody would be able to afford these products and so the concept of LTC bonds is considered. These would work like premium bonds and pay prizes but would only be cashable at the point of need. Taken together all of the products considered would extend choice and there would be something to meet most circumstances. The government’s role would be five fold: (1) to facilitate the introduction of the LTC products and provide regulation; (2) to provide appropriate incentives for people to take them up; (3) to clarify the role of the state in terms of the minimum entitlement people can expect; (4) to make it easier to get advice and direction at points of initial contact, for example with social and health care services; and (5) to cover risks that the market cannot handle.

Publication Type:	Monograph (Working Paper)
Subjects:	H Social Sciences > HG Finance
Departments:	Bayes Business School > Actuarial Science & Insurance > Actuarial Research Reports

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