留學生金融學dissertation

金融風險和保障保險的類型
 

這篇文章的目的是為了突出不同的財務風險，并說明各類保障保險，可能適當的盡量減少這些風險對教師職業成員在生命的不同階段的影響。

進行個人防護保險是保障個人和家庭的財務損失。寶貴資產的保護，如家和它的組成，汽車和個人財產是常常被忽視的，但這無疑是最有價值的資產，健康和收入水平也往往被忽視。

有各種保險可以幫助個人保護這些要領。保險政策，防止死亡，疾病，收入的危險，如盜竊，火災，水災或意外事故損失一般被稱為保護政策。

為了獲得所需的覆蓋水平，投保人支付的時間約定期限溢價。只要在約定的保費支付給保險公司的保護非常到位。然后，如果最壞的應該發生保單持有人可提出索賠誰支付了約定的數額，以幫助減輕損失的保險。

 

Financial risks and types of protection insurance

 

The aim of this article is to highlight the different financial risks and explain the various types of protection insurance that may be appropriate to minimise the impact of these risks for members of the teaching profession during the different stages of life.

 

The need for personal protection insurance is to protect the individual and family from financial loss. The protection of valuable assets such as the family home and its contents, car and personal possessions is not often overlooked, but arguably the most valuable assets, health and income levels is often overlooked.

 

There are a variety of insurance policies that can help an individual protect these essentials. Insurance policies that protect against death, ill health, loss of income or perils such as theft, fire, flood or accident are generally referred to as protection policies.

 

To obtain the level of cover required, the policyholder pays a premium for an agreed period of time. As long as the agreed premiums are paid to the insurer the protection is in place. Then, if the worst should happen the policyholder can submit a claim to the insurer who will pay out the agreed amount to help mitigate the loss.

 

This article should enable the reader to make an informed choice between the different types of products available and how they may meet the protection needs of the teaching professional throughout their different life stages.

 

STAGE ONE

 

Young professionals face the task of learning how to balance the budget within the constraints of their income levels. Acquiring some financial knowledge and making good financial choices is essential at this time of life. These are some issues that should be considered and areas of financial risks that can be identified.#p#分頁標題#e#

 

Consider the preparation of a household budget. Learn how and where money is being spent so ways to save can be identified.

 

Borrow money wisely to pay for things that provide long term value. Limit the use of credit cards and control levels of debt.

 

Establish a regular sensible saving pattern. Many benefit from the discipline of saving a set amount from each month’s salary.

 

Make sure adequate protection insurance is in place.

 

Take advantage of the Teachers Pension Scheme (TPS). This is a scheme administered by Teachers Pensions on behalf of the Department for Education. It is a ‘final salary' pension scheme, which provides a pension based on the amount of years service achieved and the level of salary enjoyed prior to retirement. The TPS is possibly the most valuable benefits available to teachers and has important ill health benefits. The TPS not only provides a lump sum and regular income after retirement but also provides dependants with financial protection after the death of a member.

 

Stage Two

 

This is often a time when income levels are rising. Larger homes, bigger and better cars to accommodate a growing family can easily consume this increasing income. Hopefully by this stage in life most individuals have accumulated some savings and gained enough experience to make good financial decisions. These are some issues that should be considered and areas of financial risks that can be identified.

 

Saving for children’s educational expenses.

 

Ensure that full advantage is being taken of the TPS. (The TPS allows for the payment of additional voluntary payments to secure higher levels of income at retirement. The cost of buying additional annual pension will depend on the age at the time the additional income secured.)

 

Save and invest for a future.

 

Ensure that insurance protection has kept pace with needs and expectations.

 

Prepare a Will in order to minimise any Inheritance Tax liabilities and to ensure that any financial and medical wishes are carried out, and any estate is distributed in accordance with wishes.

 

Stage Three

 

This stage of life is often considered to be one of the most enjoyable and fulfilling. After a successful career in education, having the freedom and financial resources to enjoy the retirement lifestyle of choice can make the “golden years” truly enjoyable. However, there are still financial issues that should be addressed.

 

Ensure any private medical insurance is adequate. The costs of medical care and life expectancy continue to increase.#p#分頁標題#e#

 

Ensure any Will is up to date. Different stages of life could give rise to the need for reviewing any Will.

 

Continue to manage investments carefully.

 

Ensure effective estate planning is in place and a lasting power of attorney deed has been organised.

 

Ensure any Long Term Care concerns are addressed.

 

Throughout all three identified stages of life there are very real financial risks, some are constant others change, the different life stages often dictate the priority associated with and given to each type of risk.

 

The Risk that Income cannot be Maintained.

 

Arguable the most important of any of these is the risk that income cannot be maintained. The risk of disability or incapacity that affects the ability to maintain income is a very real financial risk. This risk can be mitigated in a variety of ways and a variety of protection insurance policies can be utilized

 

Despite the high profile reforms of the last Labour government it would appear that teachers are still struggling to cope under mounting workloads. At the last National Union of Teachers annual conference it warned that Labour’s reforms had failed to cut working hours. It blamed the “target culture” in the state education system coupled with bullying and a lack of support from senior managers and head teachers. The Union claimed that the average secondary school teachers now worked 60 hours a week.

 

“Figures show that 308,800 state school teachers in England were signed off sick at some time in 2009 – some 56 per cent of the workforce.”

 

Without regular income, most would struggle to get by. If sickness is only suffered for a short period, savings could be utilised but this would obviously impact on future hopes and aspirations.

 

Teachers do receive full pay when off sick however, this is limited and salary is only paid up to the following maximum periods:

 

Length of Service

 

Extent of Sick Pay

 

on appointment to first teaching post:

 

full pay for 25 working days

 

after 4 calendar months' service

 

full pay for 25 working days plus

 

half pay for 50 working days

 

after 12 calendar months' service

 

full pay for 50 working days plus

 

half pay for 50 working days

 

after 2 years' service

 

full pay for 75 working days plus

 

half pay for 75 working days.

 

after 3 years service

 

full pay for 100 working days plus

 

half pay for 100 working days.

 

Statutory Sick Pay is ￡79.15 a week which in 2009 represented just 16% of the UK's average wage, while long term incapacity benefit is ￡89.80 (source: Scottish Widows tax facts and benefit card 2009/2010)

 

Therefore even a teacher with three or more year’s service (who enjoyed the best sick pay offered by the employer) is likely to lose approximately 80% of their income after only seven months off sick.

 

There is a protection insurance policy that can be utilised to mitigate some of the financial implications associated with the loss of income suffered by being off sick.

 

Long-term disability income insurance (previously known as Permanent Health Insurance)

 

A recent survey undertaken by Association of British Insurers (ABI) reveals four out of five people do not have income protection insurance cover.

 

With a Long-term disability income insurance policy in force should a policy holder suffer a sickness or injury that prevents them from working the policy would payout a monthly benefit either until a return to work or the policy term ends. With ‘own occupation’ cover practically any medical condition that prevents a teacher from working would be covered including stress.

 

Deciding on a Sum Insured

 

Applicants are able to insure up to 65% of their gross monthly earnings and the policy can last up until the planned date of retirement. The minimum policy term is usually 5 years and cover can normally be arranged up until the age of 70, although the length of cover should co-inside with the planned retirement age.

 

Setting the deferred period

 

With this type of income protection insurance applicants are able to make multiple claims throughout the life of the policy. When a policy is applied for the deferred period (the period of time that must pass before the policy will start to pay benefit) is selected. Deferred periods range from 4 weeks to 52 weeks so this period can be tailored to fit the term of sick pay is received from the employer (See chart above). A policy, which pays out after four weeks, will be far more expensive than one, which pays out after 6 months. Therefore the selection of a longer "deferred period" for a teacher with at least three years service can dramatically cut your monthly premiums.

 

Guaranteed Premiums

 

When disability income insurance is taken out a guaranteed premium policy can be selected. This means that the premiums quoted right at the start of the policy are the same as the premium at the end of the policy term, even if claims have been made during the policy term. Although the premiums are a little higher at the start when compared to reviewable premium plan it usually works out a little cheaper over the life of the plan, and the policy holder has the peace of mind knowing that the insurer cannot increase rates.

 

Terminal Illness Benefit

 

Some policies have an extra optional or included benefit. If a policy holder is diagnosed with a terminal illness, which is likely to lead to death within 12 months, the insurers will allow the policy holder to take a period, e.g. six months, of benefit as a lump sum. If this is selected the policy usually ceases. Unlike a life policy, insurers do not wait until death to pay out.

 

Death Benefit

 

Most income protection policies do not have a death benefit. Some will pay a death benefit based on 12 times the monthly benefit upon death of the policyholder. Having a death benefit does not make them life policies.

 

Indexation

 

The sum insured and premiums can be increased each year in line with inflation so the level of cover is not eroded by the rises in the cost of living.

 

Waiver of Premiums Benefit

 

A waiver of premiums benefit can included as part of an income protection plan or available for an extra charge. This means that the monthly premiums do not need to be paid if the policyholder is not working due to incapacity. This will apply even during a period of claiming. The waiver of premium benefit effectively pays the insurance premium for the time spent not able to work.

 

Rehabilitation Benefit

 

It is generally recognised that just paying cash is only one element of helping to protect income. Increasingly, income protection insurance providers are looking to include either in the policy or in their service to those unfortunate enough to claim, some form of rehabilitation assistance. This may include help in getting physically better, retraining, and assistance in obtaining a new job .There is also a trend for insurers to include some form of proportionate benefit, (to pay a partial income if the person goes to work on a part-time basis.)

 

Taxation of Benefits

 

Currently benefits are not usually taxable. However different rules may apply to High Income taxpayers.

 

Typical Exclusions

 

There are exclusions on most income protection plans and these should be fully investigated before a plan is taken out, probably the most important exclusion is usually referred to as “pre existing conditions” and will exclude any medical conditions that have been suffered by the applicant before.#p#分頁標題#e#

 

Sickness Accident and Unemployment Insurance

 

Long-term income insurance can provide earnings protection for both the short-term and the long-term however this can be relatively expensive. There is another type of policy for those on a reduced budget.

 

Accident and sickness and unemployment insurance provides the same type of cover except that these type of policies will only ever payout for a maximum period of either 12 or 24 months, depending on which option is selected. However in addition to providing cover against loss of income due to sickness they also provide income, albeit for a relatively short period of time in the event of involuntary redundancy.

 

With short-term policies there is also a restriction on the amount that can be insured. Policyholders are able to insure up to 65% of earnings. It should be noted that all short-term plans in the market come with reviewable premiums, so rates are likely to rise as policyholders grow older.

 

The Risk of Suffering from A Critical Illness

 

A critical illness is usually considered to be a disease or state of health in which death is possible or imminent. Due to improvements in medicines and care the percentage of people that survive serious illness such as heart attacks, strokes or cancer and make good recovery are improving all the time but severe financial hardship can occur due to the loss of income during the time of sick and the following period of convalescence, or any alterations to the home might be necessary.

 

This is not something people are comfortable thinking about and it’s not usually until that such a health issue arises that it is appreciated quite what a strain this can put upon a family not only emotionally but financially as well. Regardless of someone’s health, personal and household expenses need to be covered each month. Recovery from a critical illness can take a long time, and involve extra expenses, such as the costs of care and treatment, additional medical costs, help at home, child care, rehabilitation and counseling. Some conditions such kidney failure, blindness or multiple sclerosis could prevent a teacher from ever working in the education system again.

 

“We are 5 times more likely to suffer from a serious illness than die before reaching age 65” Source: *ERC Frankona 2000/**Swiss RE 2000

 

Despite the generous level of life assurance afforded by the TPS, it is usual to affect stand alone life cover for the outstanding amount of any mortgage to provide financial protection should the mortgage holder die. However as can be seen from the above quote there is a greater percentage of people suffering a critical illness and surviving it than there are dying. This could be financially devastating for personal finances, and the last thing the sufferer of a critical illness needs are concerns about having the family home re-possessed because of mortgage arrears.#p#分頁標題#e#

 

There is a protection insurance policy that can be utilised to mitigate some or all of the financial implications associated with suffering a critical illness.

 

Critical Illness Insurance.

 

Critical Illness Insurance is policy that pays a Lump Sum (the sum assured) if the insured person is diagnosed as suffering from one of the specified critical illness. This sum assured is paid directly to the policy holder after the insured person has survived for the number of days after diagnosis (the survival period) specified by the insurance policy this is usually 28 or 30 days, regardless of any other sources of income, or any other factors.

 

There is no requirement for the critical illness to result in the disability of the insured person; the policy holder still receives the sum assured in full. This type of insurance can be arranged as a standalone policy or as an addition to Mortgage Protection Insurance or Long Term Disability Income policy. The sum assured is not paid if the insured person dies within the survival period. The survival period can vary from company to company.

 

However critical illness insurance policies have come in for some criticism in the press recently.

 

“It is estimated that one in five critical illness claims are rejected because holders have failed to disclose vital information or do not meet illness criteria”

 

The Association of British Insurers (ABI) has issued a Statement of Best Practice; it aims to assist the potential critical illness policyholder in three ways:

 

“Security – provides consumers with the safeguard that appropriate minimum

 

standards of cover are used across the industry.”

 

“Comparability – makes it easier to compare critical illness (CI) insurance from

 

different insurers.”

 

“Clarity – helps improve understanding about what each product does, and does not cover.”

 

(Source ABI Statement of Best Practice for Critical Illness Cover 2009 Consultation Paper)

 

The changes, devised by the Association of British Insurers (ABI), hope to improve clarity within the industry and reduce the number of failed claims The ABI aims to apply a minimum standard to critical illness policies so that they include a number of standard definitions for common critical illnesses.

 

Examples of conditions that might be covered include:

 

Alzheimer's disease

 

Blindness

 

Deafness

 

Kidney failure

 

Major organ transplant

 

Multiple sclerosis

 

HIV/AIDS contracted by blood transfusion or during an operation

 

Parkinson's disease

 

Paralysis of limb

 

Terminal illness

 

Total permanent disability

 

(Source ABI Statement of Best Practice for Critical Illness Cover 2009 Consultation Paper)

 

Some insurers provide cover for the policyholders children free of charge, if included it runs alongside the standard cover but provides cover at a lower level. This could be invaluable should a parent need to take off from work to care for, or spend time with a sick child.

 

Although providing some ill health benefits, Teacher Association Pension Scheme does not cover Critical Illness Insurance. However it may allow you to access to part of your pension early if your diagnosis was deemed terminal or could prevent you from working again. If your condition was terminal the lump sum, would pass to your family this would vary on length of service and level of salary.

 

Premiums

 

The cost of protection insurance is dependent on the insurance company’s underwriters. The underwriters require the accurate completion of a health questionnaire and the applicant is required to disclose all information regarding their medical history, height and weight, smoking status etc. With applications for critical illness insurance there is an even greater emphasis on family history, smoking and weight as these are important factors that can greatly increase the risk of suffering from a critical illness.

 

Waiver of Premium

 

If the policyholder cannot continue to work because of the diagnosis of a specified illness the insurance company will continue to pay the premiums on your plan to maintain the benefits under the policy.

 

Indexation

 

The sum insured and premiums can be increased each year in line with inflation so the level of cover is not eroded by the rises in the cost of living.

 

So as previously discussed income can be protected in a variety of ways Long-term Disability Income Insurance can be utilised to replace income, Sickness Accident and Unemployment Insurance can provide short term benefits for a more modest premium. Critical Illness Insurance can be utilised to provide a Lump Sum if the insured person is diagnosed with one of the specified critical illnesses.

 

The Risk of not being able to obtain Medical Treatment from the National Health Service (NHS) when Required#p#分頁標題#e#

 

“Approximately one million people are on a NHS waiting list, 25 per cent of whom are on the list for longer than one year.”

 

When an illness occurs most people would like to take prompt action to get treatment. Any disease, illness or injury can take its toll on mental as well as physical health and almost all health conditions benefit from prompt treatment. Unfortunately prompt treatment is not always available from the National Health Service (NHS). The resources of the NHS are restricted by government, and there is an ever increasing demand as the population continues to grow and people are living longer. Also the improvements in drugs and medical advances continually increase the costs and the types of illness that can be treated. With this ever increasing demand on limited resources, there are often delays before treatment from the NHS can be obtained. There is an insurance policy that can be utilised to cover some or all of the cost of medical treatment.

 

Private Medical Insurance (PMI)

 

“Approximately one million people are on a NHS waiting list, 25 per cent of whom are on the list for longer than one year.”

 

“According to the research, the proportion of NHS patients having to wait longer than the 18-week target for non-emergency surgery had almost doubled from 1.5 per cent 18 months ago to nearly three per cent in March this year. According to data from the Department of Health, the number of patients waiting longer than 18 weeks — from GP referral to being treated as an inpatient — fell steadily from April 2007, when almost 34,000 people were waiting, to 8,674 in December 2008.”

 

“The figure remained stable at about 10,000 until June 2009, just before the new rules [limiting junior doctors to a 48-hour week] came in when the rise began.”

 

“In March this year, it had risen to 17,515, a level last seen in September 2007.”

Private Medical Insurance (PMI) can be claimed against to settle previously agreed medical bills, or more often to provide the required medical treatment through one of the insurers own private hospitals. According to recent figures approximately 11 per cent of the UK population is covered by PMI, the majority of schemes are provided by employers, generally the teaching profession does not benefit from such schemes.

 

There are three main reasons to take out PMI:

 

To obtain access to treatment without delays caused by NHS waiting lists.

 

To be able to choose when and who provides treatment.

 

To be more comfortable when being treated, probably in more pleasant surroundings.#p#分頁標題#e#

 

PMI often provides additional benefits such as help lines manned by qualified medical personnel to answer health questions for customers. They often provide health screening; eye tests, dentistry, private maternity provision and complementary medicine.

 

There are many types of PMI Policy, ranging from full cover policies to policies that provide very limited cover (cancer only for example) . Generally the policy selected is determined by the applicants existing health and how much they are prepared to pay for the cover. There are however only two bases of cover;

 

Moratorium or Full Medical Underwriting

 

Moratorium

 

If this option is selected applicants are asked only to provide basic information about themselves and any family member to be insured. Applicants are not asked to disclose detailed medical history, but any condition or illness that the applicant is suffering from or has received treatment for are excluded from cover (pre existing condition). If the pre-existing condition receives no treatment, medication or further tests after a period (usually two years) treatment for that condition will automatically be covered should it later recur. Some conditions e.g. chronic conditions which require continuous treatment are not likely to ever be covered by PMI written on a moratorium basis.

 

Full Medical Underwriting

 

Applicants need to provide full details of their medical history. The insurer can ask any additional questions and may write to the applicants Doctor to obtain any information they require. Once the insurer has all the information they require and the policy has been underwritten the insurer quotes a firm premium and the insurer advises what medical conditions it will not cover (this will usually be current or recent problems or conditions only) The insurer advises if these exclusions are permanently excluded or if the exclusion is for a limited period (the first 2 years of the policy for example.)

 

Although the Full Medical History basis involves more time and inconvenience when completing the application, it does mean that, when policy documents are received the policyholder knows which conditions are excluded from cover.

 

The ABI now has two common definitions which private healthcare insurers must now use.

 

Chronic Conditions

 

A disease, illness, or injury that has one or more of the following  characteristics:

 

it needs ongoing or long-term monitoring through consultations,  examinations, check-ups, and / or tests

 

it needs ongoing or long-term control or relief of symptoms

 

it requires your rehabilitation or for you to be specially trained to cope  with it#p#分頁標題#e#

 

it continues indefinitely

 

it has no known cure

 

it comes back or is likely to come back.

 

Pre-existing Conditions

 

Any disease, illness or injury for which:

 

you have received medication, advice or treatment

 

or you have experienced symptoms

 

Common exclusions for PMI

 

Almost all policies will exclude:

 

Accident and emergency admission

 

Accident and emergency outpatient treatment

 

GP  services

 

NHS  prescriptions

 

Normal pregnancy

 

Factors that need to be taken into consideration when considering PMI

 

How much can be budgeted to pay for cover?

 

Are the hospitals offered under the plan suitable?

 

Possible treatment exclusions?

 

Treatment inclusions?

 

Is In-patient and out-patient cover required?

 

Does the policy limit claims?

 

Whether a family policy is required?

 

The cost?

Private medical insurance is considered by many people to be a luxury, not a necessity.It is however a luxury that would be desirable for the majority of people, as everyone who suffers ill health would want to obtain treatment promptly and receive that treatment in a pleasant environment. The cost of PMI is generally considered to be its biggest drawback. The cost of PMI is currently increasing at approximately 11% per annum, this increase is due to general inflation and the increasing costs of medical technology. Whether or not the cost is prohibitive is quite simply a matter of choice.

 

The risk of incurring an Inheritance Tax Liabilities (IHT)

 

In the UK when someone dies the cash savings, property and other assets they leave behind are known as their estate. When this happens the estate becomes subject to tax by HM Revenue and Customs.

 

Inheritance tax is levied on far more estates now than in the past, as estates are steadily increasing in value, mainly due to increase in house prices and the increased amount of house ownership brought about by the “right to buy” (giving tenants the right to purchase their homes from the landlord at a discounted price).

 

Tax is charged at a rate of 40% after the “nil rate” band has been applied currently ￡325,000#p#分頁標題#e#

 

For example a simple IHT calculation for an individual with an estate worth ￡400,000 would be (￡400,000 - ￡325,000) = ￡75,000.

 

￡75,000 x 40% = ￡30,000 tax to pay.

 

Since October 2007 a widow or widower have the right to transfer the percentage of any unused nil rate band from their deceased spouse, this effectively doubles the nil rate band for a married couple to currently ￡650,000.

 

As they get older the retired teacher may well begin to think about leaving their wealth to their families, and may realise that there are penal taxes that may apply to the estate before its distribution to the chosen beneficiaries. Potential IHT liabilities can be mitigated in a variety of ways such as making life time gifts, utilising the small gift allowance and annual allowances, making gifts to charities and placing assets in Trusts, but all of these methods have one thing in common – they reduce the individual’s control of their estate to varying degrees, something which may not be desirable. There could therefore be an IHT liability that needs to be paid to HM Revenue and customs by the beneficiaries.

 

Life assurance is one of the methods of funding for IHT liabilities – this can remove the worry about how loved ones will pay the tax on their death, and the family will not have the anxiety of having to raise funds to pay the tax. IHT has to be paid to HMRC before the recipient of the estate can obtain the assets of the estate. This can cause a problem if the asset is required to pay the bill. One solution is to set up a life assurance plan, with a sum assured equivalent to the amount of the liability. There are three types of life assurance suitable for IHT liability planning, whole of life assurance, term assurance and gift into vivo cover. Whole of life assurance is generally the preferred option as it is guaranteed to pay out when the life assured dies.

 

.

 

Whole of Life

 

Whole of Life assurance can be relatively expensive however it is guaranteed to pay out on death of life assured whenever it occurs. However as each individual plan is medically underwritten – the life assured needs to be in reasonable health for life office to accept plan.

 

Even if whole of life assurance is taken out and accepted by the insurer, the risk remains that the sum assured chosen may be lower than the ultimate IHT liability. This will often be the case if the estate increases in value, (property values increasing for example) however index linked plans can be used to mitigate this situation, however this adds further to the overall cost of the plan as unit linked plans premiums may increase in the future.

 

Term Assurance

 

Term Assurance is a cheaper option than whole of life assurance. (Term assurance pays out the sum assured if the life assured dies within the policy term.) However term assuance has the distinct disadvantages that it will not pay out if the life assured lives past the policy term and most life offices do not accept term assurances beyond age of 75-80.#p#分頁標題#e#

 

Another recognised way of reducing an Inheritance tax liability is to gift away assets to reduce the value of the estate and therefore the amount of IHT liability. These gifts will become Potentially Exempt Transfers (PET). This is when a gift of money (or other assets) is made to another individual; the gift is exempt from IHT as long as the donor lives for seven years after the date the gift is made. However if the donor dies within seven years of the date the gift is made there is a liability for IHT at 40%, however this reduces on a sliding scale, depending on when the donor dies.

 

There is a type of term assurance called gifts inter vivos cover designed to fund this reducing IHT liability. The initial sum assured should be for the entire (potential) tax liability on the gift.

 

However gift inter vivos insurance is a decreasing term assurance where the sum insured reduces in line with the reducing IHT liability. This will ensure the beneficiaries of the client’s gift will have funding to pay the IHT liability should the donor not live seven years after making the gift. There is no cash value to the insurance and the plan ceases if the client lives for seven years.

 

Funeral Costs

 

This is often a concern to the elderly as few feel comfortable with the thought of their families bearing the costs on their funeral. There are generally considered to be two plans for insuring funeral costs.

 

Whole of Life Assurance

 

A regular premium is paid, usually for life. A sum assured equal to current average funeral costs with an index-linking option to ensure the sum assured keeps pace with rising funeral costs.

 

Pre-Paid Funeral Plans

 

These are single premium plans where the client pays for their funeral in advance. Most companies have a range of prices with optional extras like make of coffin, number of following cars etc. The advantage of these types of plans is that as they are paid in advance, therefore the policyholder will not be affected by rising funeral costs in the future and there is no monthly premium to reduce the available income in retirement.

 

The Risk of Funding Long Term Care

 

“It now costs more to keep your granny in an "average" care home for a year than it does to educate a child at Eton.” (telegraph.co.uk)

 

"A place in a nursing home now costs an average of ￡36,000 a year. A place at Eton for a year currently costs just under ￡29,000.” (telegraph.co.uk)

 

These statistics emphasizes the importance of being aware of the impact of LTC costs. The elderly are becoming increasingly aware of the possibility that they may need residential care in the future. Advancing life expectancies highlights the need for long term care planning.#p#分頁標題#e#

 

“Over the next 50 years, the number of people age 65-84 is expected to increase by 41% (an additional 3.31 million people)(Long term care insurance - CII CF8, Patterson, I (2006))

 

Many people are concerned about affording residential care should they need it in the future, as well as expressing a preference for their assets to be inherited by their families. Local Authorities use complex criteria to assess the eligibility to whether an individual can receive State funding and anyone with capital of more than ￡23,000 is generally not able to claim state funding.

 

“It is estimated that over the past decade more than 70,000 people have been forced to sell their homes to pay healthcare fees in their old age” (telegraph.co.uk)

 

There are ways to provide funding or obtaining insurance to cover all or some of the cost of providing LTC

 

Pre funded LTCI – This is like a life assurance contract in that the policyholder selects a level of cover (an annual amount) and premiums are paid regularly and are dependent upon the level of cover selected. The policyholder can make a claim on the policy when they meet certain criteria like not being able to perform a certain amount of activities of daily living (ADL). ADLs include washing, dressing, feeding, continence etc. Premiums can be reduced if options such as deferred period are included, for example no benefit paid for two years after a successful claim, or a restriction on the number of years benefit will be paid. Benefit is usually paid monthly directly to the care home provider.

 

However very few (if any) insurers provide this type of cover at present due to the

 

“Costs of regulation and the relatively limited number of policies that were being sold” (Long term care insurance, CII CF8, Patterson, I (2006)).

 

The main advantages to the policyholder of pre funded long term care insurance were that they were relatively cheap, especially if the plan was started when the policyholder was young. The benefits were paid tax free.

 

However these policies had no guarantee that they would cover the cost of the required long term care because of the uncertainty of the future costs.

 

There was no investment element, so no return of premiums could be made if claim was not made.

 

The Risk of losing the ability to make Financial Decisions

 

As people grow older they often become aware that they may not always be able to care for themselves, if that concern is of a purely physical nature then the long term care options outlined above may alleviate the concern. However many are concerned that they may not be able to make decisions for themselves in the future.#p#分頁標題#e#

 

“There are currently 750,000 people with dementia in the UK.”

This is something that is usually a concern of the elderly but this should not necessarily be the case.

 

“There are over 16,000 younger people with dementia in the UK”

 

Power of Attorney

 

A Power of Attorney (POA) is a legal document that allows a person (the donor) to give to another person or persons (the Attorney) the power to take decisions with regard to their financial affairs and/or their health and personal welfare. The donor needs to be over 18 years of age and to have the mental ability to choose another person they wish to make the decisions on their behalf. An Attorney must act in the best interests of the donor.

 

The LPA document must be registered with the Office of the Public Guardian before it can come into effect, this registration can be carried out by the donor while they have the capacity to do so, or at any time by the Attorney should the donor not have the capacity to do so. The Donor is able to restrict the LPA so that the Attorney cannot act for them while they are able to act for themselves but without this restriction the Attorney can act as soon as the LPA is registered.

 

Attorneys cannot do whatever they like they must be guided by the principals of the Mental Capacity Act code of practise. The Mental Capacity Act 2005 for England and Wales sets out a framework for Attorneys and makes it clear what decisions can and cannot be made by them. It covers all the major decisions such as where the Donor should live and who should provide their care and welfare.

 

The Act is designed to protect the individual who no longer has the mental capacity to take care of their own affairs. There are five key principals in the act.

 

“Every adult has the right to make his or her own decisions and must be assumed to have capacity to make them unless it is proved otherwise.

 

A person must be given all practicable help before anyone treats them as not being able to make their own decisions.

 

Just because an individual makes what might be seen as an unwise decision, they should not be treated as lacking capacity to make that decision.

 

Anything done or any decision made on behalf of a person who lacks capacity must be done in their best interests.

 

Anything done for or on behalf of a person who lacks capacity should be the least restrictive of their basic rights and freedoms.”