CII R05 Long-Term Care Insurance 2 — Questions and Answers
Question 1: An immediate needs annuity pays its income directly to a registered care provider. What is the tax advantage of this arrangement?
- The income is subject to only 10% tax
- The income paid directly to a registered care provider is free of income tax (Correct answer)
- The premium qualifies for 40% income tax relief
- The annuity income is exempt from both income tax and NIC
Correct answer: The income paid directly to a registered care provider is free of income tax
When the income from an immediate needs annuity is paid directly to a qualifying registered care provider, it is free of income tax. If paid to the individual, it becomes taxable income.
Question 2: What triggers a claim under a long-term care insurance policy?
- Reaching the age of 75
- Being unable to perform a specified number of Activities of Daily Living (ADLs) (Correct answer)
- Receiving a terminal illness diagnosis
- Being admitted to hospital for more than 30 days
Correct answer: Being unable to perform a specified number of Activities of Daily Living (ADLs)
LTC policies define a claim trigger as the inability to perform a specified number (typically 2–3 out of 6) activities of daily living, or a diagnosis of severe cognitive impairment such as dementia.
Question 3: What is the difference between a 'care fees plan' and a 'care annuity'?
- They are identical products with different brand names
- A care fees plan is pre-funded, while a care annuity (immediate needs annuity) is purchased at the point of needing care (Correct answer)
- A care annuity is regulated; a care fees plan is not
- Care annuities are for residential care only; care fees plans cover domiciliary care only
Correct answer: A care fees plan is pre-funded, while a care annuity (immediate needs annuity) is purchased at the point of needing care
A care fees plan is a pre-funded insurance policy bought in advance of needing care. An immediate needs annuity (care annuity) is purchased once care is already required, using a lump sum from savings or assets.
Question 4: Under the Care Act 2014 in England, what is the local authority's primary duty regarding individuals who need care?
- To fund all care costs regardless of the individual's assets
- To assess the care needs of any adult who appears to need care or support and to meet eligible needs (Correct answer)
- To fund care only for those with zero assets
- To provide residential care only, not domiciliary care
Correct answer: To assess the care needs of any adult who appears to need care or support and to meet eligible needs
The Care Act 2014 established a duty on local authorities to assess the care needs of all adults who appear to need care or support, and to meet needs that meet the national eligibility criteria, regardless of finances (though means-testing applies to funding).
Question 5: A 70-year-old client has £200,000 in savings and is considering long-term care planning. Which of the following would you most likely recommend as a planning strategy?
- Spend all savings immediately so local authority funding applies
- Consider an immediate needs annuity now to lock in current health-based rates
- Consider a combination of self-funding and an immediate needs annuity purchased if and when care is needed (Correct answer)
- Invest all savings in a pension to avoid care funding means testing
Correct answer: Consider a combination of self-funding and an immediate needs annuity purchased if and when care is needed
For a 70-year-old with significant assets above the self-funding threshold, a common strategy is to use savings initially (self-fund) and purchase an immediate needs annuity if and when care is actually needed, providing certainty of lifetime funding at that point.
Question 6: What is 'nursing care' versus 'personal care' in the context of care funding in England?
- There is no distinction — both are fully funded by the NHS
- NHS-funded nursing care (FNC) contributes to registered nursing care costs in a nursing home; personal care is means-tested and funded by the local authority (Correct answer)
- Personal care is free for all over-65s; nursing care is means-tested
- Both are free at the point of need under the NHS Constitution
Correct answer: NHS-funded nursing care (FNC) contributes to registered nursing care costs in a nursing home; personal care is means-tested and funded by the local authority
In England, the NHS funds the nursing element of care in a nursing home through Funded Nursing Care (FNC). The personal care element (non-nursing) is subject to local authority means-testing. In Scotland, free personal care is available to all over 65.
CII R05 Long-Term Care Insurance 2
An immediate needs annuity pays its income directly to a registered care provider.
What is the tax advantage of this arrangement?