8: Long-Term Care Insurance Pt. 2

Question 1

Who is ultimately responsible for proving “deprivation of assets” with regards to determining care fee eligibility?

Answer 1

Local authority

Question 2

In considering whether deprivation has occurred (deliberate deprivation rule), what is the most important aspect to consider?

Answer 2

Motive or intention of the investor. Should be very clearly outlined in the suitability report!

Question 3

What body must a care home be registered with to receive tax-free income from an Immediate Needs Annuity?

Answer 3

Care Quality Commission

Question 4

What type of equity release involves selling part or all of your home to a company?

Answer 4

Home reversion plan

Question 5

What is the minimum age to qualify for a lifetime mortgage?

Answer 5

55

Question 6

What type of annuity begins paying for care immediately upon purchase with a lump sum?

Answer 6

Immediate Needs Plan (Impaired Life Annuity)

Question 7

What is the term for care provided temporarily to give relief to carers?

Answer 7

Respite care

Question 8

What is a potential drawback of whole of life policies used to fund long-term care?

Answer 8

May underfund dependants

Question 9

In what situation might a Deputyship Order be required from the Court of Protection?

Answer 9

If someone loses capacity and has no EPA or LPA in place

Question 10

John is 78 and requires care. He has dementia and cannot wash or feed himself. What type of LTCI would pay out immediately?

Answer 10

Immediate Needs Plan

Question 11

An individual wants to release equity but also retain ownership of their home. What option suits best?

Answer 11

Lifetime mortgage — unlike home reversion, ownership is retained and only repaid on death or permanent care move.

Question 12

Alice wants to retain ownership of her home but needs to unlock some equity. What equity release option should she avoid?

Answer 12

Home reversion plan - because she will no longer own the home in full.

Question 13

Why are legacy pre-funded LTC policies no longer available to buy?

Answer 13

They were withdrawn from the market — they were expensive and posed risk to insurers, but some are still active from past sales.

Question 13

George bought a traditional pre-funded policy 20 years ago. He now needs care and can’t manage 3 ADLs. Will it likely pay out?

Answer 13

Yes

Question 14

What two types of equity release are used to fund long-term care?

Answer 14

Lifetime mortgages and home reversion plans — both unlock home equity, but with different ownership and repayment models.

Question 15

What key benefit do Immediate Needs Annuities offer if paid directly to the care provider?

Answer 15

The income is tax-free — this is a major advantage over standard annuities, encouraging use for long-term care.

Question 16

What eligibility is usually required to purchase an Immediate Needs Plan?

Answer 16

Inability to perform at least one ADL or presence of cognitive impairment — this ensures it’s only used by those genuinely in need.

Question 17

What does index-linking an Immediate Needs Plan do?

Answer 17

Increases the payout in line with inflation or care cost rises — this helps protect against the impact of escalating care fees.

Question 18

What is the cooling-off period for Immediate Needs Plans?

Answer 18

30 days — after that, the plan usually cannot be cancelled, making it vital to consider carefully before committing.

Question 19

A client has high-value assets but limited income. What long-term care funding option may suit them?

Answer 19

Equity release — it turns capital into income without needing to sell investments or property outright.

Question 20

Why might a guarantee be recommended with an Immediate Needs Annuity?

Answer 20

To protect against early death — without it, the lump sum premium is lost, leaving nothing for the estate or family.

Question 21

A client performs all 6 ADLs but is considering pre-funding future care. Are they eligible for an Immediate Needs Plan?

Answer 21

No — eligibility requires current need, and they are still fully independent, so a pre-funded policy (if still available) or savings planning is more suitable

Question 22

What kind of housing includes a warden and allows independent living with light supervision?

Answer 22

Sheltered housing — it’s not formal “care” but offers a safer environment for those needing mild oversight.

Question 23

How does equity release affect means-tested benefits?

Answer 23

Released cash may reduce benefit entitlement — because it increases accessible capital, triggering reassessment for means tests.

Question 24

A person wants to use a lump sum from investments to buy care. What tax might apply?

Answer 24

Capital Gains Tax (CGT) — disposing of investments could trigger CGT if gains exceed the annual exemption.

Question 25

A client wants to rent out their home to generate income for care. What tax applies?

Answer 25

Income tax — rent received is treated as taxable income, potentially impacting their tax position and care planning.

Question 26

What is a major risk of using a whole of life policy with a long-term care option?

Answer 26

It might reduce the amount available for dependants — because part of the sum assured is diverted to care costs, less is left for beneficiaries.

Question 27

Why are deferred care plans typically cheaper than Immediate Needs Plans?

Answer 27

Because they delay the start of benefit payments — they are designed as a backup in case funds run out later, lowering insurer risk and cost.

Question 28

A client has a pre-funded care cash plan that pays out for 3 years. What happens if they still need care after this period?

Answer 28

The benefit stops — most care cash plans are time-limited and will cease payment after the agreed term, regardless of ongoing need.

Question 29

What condition must usually be met to trigger benefits under a pre-funded traditional insurance LTC policy?

Answer 29

Inability to perform 2–3 ADLs — depending on the policy level, this functional test determines eligibility for benefit.

Question 30

How does poor investment performance affect pre-funded investment-linked LTC policies?

Answer 30

It can reduce available care funding — because premiums are funded from the bond, underperformance reduces the pot available.

Question 31

A drawdown lifetime mortgage differs from a lump sum one in what way?

Answer 31

It allows gradual access to funds — giving flexibility to draw money as needed, rather than receiving it all upfront.

Question 32

What is a viatical settlement?

Answer 32

Selling a life policy for immediate cash — the buyer becomes entitled to the death benefit and pays premiums until death.

Question 33

What is the effect of paying lower rent in a home reversion plan?

Answer 33

You get less cash up front — lower ongoing rent means the reversion company offers a lower premium for the property share.

Question 34

Why might someone choose to rent out rather than sell their home to fund care?

Answer 34

To generate ongoing income — renting maintains asset ownership while providing a regular income stream, though it creates taxable income. They might not need the capital all in one go.

Question 35

A client’s home is worth £300,000. They sell 30% via home reversion. How much might they receive on average?

Answer 35

Around £30,000 — because home reversion plans usually pay around a third of the value sold, i.e., ~33% of £90,000.

Question 36

What’s a key legal risk if a person loses capacity without an LPA or EPA?

Answer 36

A Deputyship Order is required — this can be slow, costly, and less flexible than having an LPA in place beforehand.

Question 37

How might a drawdown lifetime mortgage be more tax-efficient than taking a lump sum?

Answer 37

It avoids receiving all the cash at once — which can reduce the impact on means-tested benefits and reduce unnecessary capital on hand.

Question 38

Which type of LPA only becomes active on mental incapacity?

Answer 38

Health and welfare LPA — unlike the property and financial affairs LPA, which can be used immediately after registration.

Question 39

What is the main reason clients hesitate to use annuity-based LTC funding?

Answer 39

Fear of dying early — they may feel it’s poor value if they don’t live long enough to benefit, making it seem inflexible.