Care costs in old age. How will you pay for it?

If you want to take the worry out of needing to be looked after when you are older, there are schemes for you, says Edmund Tirbutt. With care in your own home costing up to £4,000 a month, a policy can bring you peace of mind

To most, mention of "long-term care" conjures images of care homes full of elderly people looking vacant or bored. But more than two-thirds of those suffering in their old age are cared for in their own homes.

To most, mention of "long-term care" conjures images of care homes full of elderly people looking vacant or bored. But more than two-thirds of those suffering in their old age are cared for in their own homes.

Leaving home can be a huge wrench and most people are naturally fearful of change. Chris Ellicott, technical manager at Age Concern Financial Partnerships, says: "Many suffering a gradual deterioration will start with care at home, especially if they are married.

"Fewer than 10 per cent of care home residents still have a living partner, because couples tend to look after each other for as long as possible and employ extra help. But once you become bed-bound and incontinent it becomes more difficult for a partner or home help to look after you."

Those in home-care, like those who enter care homes, can pay privately or rely on the state, if they satisfy the means test. Traditionally, a lack of clear national guidelines has meant that whether someone has state-funded care at home is up to their local authority. State funding is available, if you have total assets, including the value of your home, worth less than £19,000 (rising to £19,500 on 7 April).

But new guidelines from the Department of Health could improve the chances of state funding for care at home from 1 April because they advise local authorities to use means-test limits no harsher than those used for care-home cases.

Tim Ward, director of the national public help and information organisation Care-Aware, says: "The guidelines should lead to greater consistency among local authorities on means-tests limits, and they also advise that those being cared for should enjoy a minimum level of income. But this does not overcome the fundamental problem that most local authorities are short of funding for care." Even relying on local authorities who do have adequate funding involves taking what you are given, and this can be an impersonal service.

Paying privately enables you to choose your own carers, possibly forming valuable friendships. But the cost of private care at home can be up to £1,000 a week for the more labour-intensive packages. Many people start off paying privately but find their capital runs out and their local authority is not prepared to pay for the same level of care. This can force them to sell their home and move into care.

There are two main options for long-term care insurance, which will cover private care costs in your own home or in a care home: pre-funded policies and immediate fees plans.

Pre-funded policies are for those who pay a regular premium. The policies provide an income if you become unable to perform certain activities of daily living, such as washing, dressing and going to the toilet. There are no restrictions on what you can spend on this, but you do not get any premiums back if you never have to claim.

Immediate-fee plans are bought with a lump sum when care is needed. They remove concerns about running out of money by guaranteeing to pay for the remainder of the plan-holder's life, and, because they incorporate impaired-life annuities, can offer enhanced terms for those in poor health. Immediate-fees plans are less flexible than pre-funded ones because their income has to be spent specifically on care and, to ensure this happens, it must be paid to a third party rather than to the policyholder.

The third party can be a care provider, but using a solicitor or accountant instead can prove more flexible because they can distribute the plan proceeds among a wider range of care costs and can arrange different payment frequencies.

This was the method recommended to 73-year-old William Steele last December by Margaret Borwick, principal at Nexus Financial Planning, a specialist independent financial adviser (IFA) based in Haslemere, Surrey. Mr Steele, a retired civil servant who lives in a two-bedroom bungalow in Guildford, Surrey, has 24-hour attention from a live-in carer provided by Albury Care. He also has another carer for two hours a week, largely for social reasons, and has to pay his local council £15 a month for his alarm system.

His immediate-fees plan with the Pension Annuity Friendly Society, which cost him £89,300, pays a monthly income of £1,500. This tops up his existing income to enable him to meet care costs of £2,500 a month. Payments are made to a local solicitor who ensures the three different costs are met.

Mr Steele's wife died 15 years ago and he has no children or living relatives. "I find this an excellent arrangement because I know my care costs are guaranteed for the rest of my life and I don't have to worry about whether I've remembered to pay the bills. It's nice to know I can stay in my own home with carers of my choice because I regard them as good friends and their support has helped to make my life worthwhile."

Specialist IFAs: four of the best

Care Asset Management: 0161 786 6100;

Nursing Home Fees Agency: 0800 998833;

Nexus Financial Planning: 01428 658227;

The Onion Group: 01753 652000.