CII R05 Long-Term Care Insurance — Questions and Answers
Question 1: What is 'long-term care insurance' designed to cover?
- Terminal illness treatment costs
- The cost of care in a residential or nursing home, or domiciliary care, when the individual can no longer care for themselves (Correct answer)
- Loss of income during a short-term illness
- Funeral costs and estate administration expenses
Correct answer: The cost of care in a residential or nursing home, or domiciliary care, when the individual can no longer care for themselves
Long-term care (LTC) insurance provides funds to pay for professional care — either in a care home or at home — when an individual can no longer perform a defined number of activities of daily living independently.
Question 2: What is a 'pre-funded' long-term care plan?
- A plan purchased at the point of needing care, funded by the local authority
- A plan taken out in advance (typically in working life) to fund future care needs (Correct answer)
- A plan funded exclusively by NHS grants
- A plan where care costs are paid retrospectively
Correct answer: A plan taken out in advance (typically in working life) to fund future care needs
A pre-funded long-term care plan is purchased while the individual is still healthy and in work, building up funds or purchasing insurance coverage that will pay for care costs if and when they arise later in life.
Question 3: What is an 'immediate needs annuity' in the context of long-term care?
- An annuity purchased at retirement to provide income during working years
- An annuity purchased with a lump sum at the point of needing care, providing a regular income to fund care home fees for life (Correct answer)
- A government-funded care payment for those with no savings
- A joint life annuity that covers both care and funeral costs
Correct answer: An annuity purchased with a lump sum at the point of needing care, providing a regular income to fund care home fees for life
An immediate needs annuity (also called an immediate care plan) is purchased when care is already needed. A lump sum buys a guaranteed income for life that is paid directly to the care provider and is free of income tax.
Question 4: What is the current (2026) capital threshold below which local authorities in England must contribute towards care costs?
- £100,000
- £23,250 (Correct answer)
- £125,000
- £500,000
Correct answer: £23,250
In England, the upper capital threshold is £23,250 (as of 2026). Below this level, the local authority must contribute to care costs. Those with assets above this level are expected to self-fund.
Question 5: Which of the following is a key risk associated with pre-funded long-term care insurance?
- The premiums are too low to make a profit for the insurer
- The policyholder may never need care and receive no benefit from the policy (Correct answer)
- The policy automatically converts to life assurance after 10 years
- Long-term care is fully funded by the NHS so private insurance is redundant
Correct answer: The policyholder may never need care and receive no benefit from the policy
A major concern with pre-funded LTC insurance is that the policyholder pays premiums throughout their life but may never need long-term care. Unlike life assurance, there is no certainty of a payout.
Question 6: What is 'domiciliary care' in the context of long-term care insurance?
- Care provided in a residential nursing home
- Care provided in the individual's own home (Correct answer)
- Care funded by the local authority
- Care provided in a hospital setting
Correct answer: Care provided in the individual's own home
Domiciliary care refers to professional care services provided in the individual's own home, such as help with washing, dressing, and meals, allowing them to remain at home rather than moving to a care facility.
CII R05 Long-Term Care Insurance
What is 'long-term care insurance' designed to cover?