2.2.6 Long Term Care
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The purpose of this cover is to provide the funds to meet the cost
of care in later life. Care costs are expensive and such policies
allow the flexibility to provide the best facilities and nursing
care for the claimant, either in a private nursing home or at home. -
Benefit will usually consist of monthly income payments which are made once the definition of disability has been fulfilled.
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The definition of disability for this type of cover is nearly always based upon Activities of Daily Living (ADLs). Benefit becomes payable once the assured has reached a degree of disability, which means he is unable to perform any three (for example) ADLs unaided. ADLs are considered as basic to human existence.
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A typical list of ADLs would be:-
- Eating.
- Dressing.
- Bathing.
- Using the toilet.
- Getting in and out of bed.
- Walking.
- Climbing stairs.
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Each of these needs to be clearly defined; for example, 'feeding' might be defined as "cutting meat, buttering bread, getting food and drink to the mouth using fingers or utensils".
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A partial benefit may be payable if the life assured is unable to perform a lower number of ADLs.
- As with income protection and critical illness policies, there will be specified circumstances in which a claim for benefit will not be met. Such exclusions may, for example, include situations where the disability is a consequence of or aggravated by:-
- Attempted suicide.
- Self inflicted injuries.
- Failure to seek or to follow medical advice.
- War, invasion, riot or civil commotion.
- AIDS or HIV infection.
- Any condition arising during the first 30 days following the commencement date of cover.
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Policies may be written as an optional extra to a Universal Whole of Life policy, or as a stand alone contract.
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Where the base product is a life policy providing a benefit payable on death, a surrender value may accrue. This will depend on the specific product.
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The tax treatment of the benefit under such policies remains unclear. However, if the benefit is payable directly to the insured as income, it can be expected that it will be treated in the same way as a disability income and taxed accordingly, with benefits being taxed as earned income. If paid as a lump sum, part will be treated as a return of capital and, therefore, untaxed.
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If, however, the benefit represents a direct payment of costs incurred, it is likely that the benefit payments will be treated as medical costs with no tax being levied.