What is the difference between a DAP and a RAD and who pays what?
Getting your head around the different aged care accommodation fees can be difficult but, in this article, we’re going to make it a lot easier to understand.
In our last article we talked about the RAD – the Refundable Accommodation Deposit and how that works. We also mentioned that there was another way to pay your accommodation costs and that’s what we want to talk about today.
What is the RAD?
The RAD is a lump sum payment for your accommodation cost when you enter aged care.
It’s called a RAD because the deposit is fully refundable to you or your estate when you leave the facility.
What is a DAP?
Anyone with assets over $50,500 has to make a contribution towards their accommodation costs. If your assets are valued at over $171,535, you will need to make a full accommodation payment.
Not everyone has the funds available to pay the deposit as a lump sum so instead of paying the RAD, you might choose to pay a daily fee.
The Daily Accommodation Payment (DAP) is another way to pay for your aged care accommodation.
How much is the DAP?
The DAP is calculated against the overall accommodation fee you need to pay. It’s a daily cost which is charged each month for anyone who hasn’t paid the RAD in full. Think of it like rent.
The DAP includes an interest component which is calculated at a rate set by the government. Currently it is 4.02% (as of January 2021).
So, to work out how much your DAP would be, multiply the full accommodation cost by the current interest rate and then divide that figure by 365 to find the daily amount.
Here’s an example.
If your accommodation is valued at $500,000 and you pay no lump sum contribution, you need to multiply that by 4.02% and then divide by 365.
$500,000 x 4.02% = $29.800.
$29.800 ÷ 365 = $81.65
So, you would need to pay a daily accommodation payment of $81.65.
Aged care providers must disclose the RAD and DAP costs to you so you can compare them and choose the best provider for your needs.
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Paying a combination of RAD and DAP
You may choose to make a combination of RAD and DAP payments. Any RAD payment – the lump sum paid up front – will lower the cost of your daily fee or DAP.
This might suit your needs if you don’t have enough assets to pay the full RAD or you don’t want to sell your family home. You can pay an amount up front and then pay a lower daily rate for your accommodation.
Any amount you pay as a RAD is fully refundable when you leave the facility.
Is the DAP refundable?
No, it is not. Unlike the RAD which is treated as a loan to the facility and repaid when you leave, the DAP is treated like rent and is not refundable. This is an important distinction between the two forms of payment that you need to consider.
Should I pay the RAD or DAP or both?
This is a decision you need to make based on your financial position. Do you have enough assets to pay the RAD? Do you want to keep or sell your home? What will it cost you to have your home sitting empty? Do you have other assets you can draw from to cover your daily costs?
We recommend speaking to a financial advisor before you make your choice. They will help you work out what’s best for you.
When do I need to choose my form of payment?
You have 30 days from the date you enter aged care to decide between the RAD, DAP or a combination of the two.
Summary of the differences between the RAD and the DAP
- The RAD is a lump sum payment of your accommodation costs. If you pay this, you don’t have to pay the daily accommodation payment. It is fully refundable when you leave.
- The DAP is a daily payment for your accommodation which includes an interest component set by the government. None of your DAP is refundable.
- You can choose a combination of the two forms of payment if it meets your needs.
This is a big decision which will affect your finances now and in the future. Don’t make it based on emotion. Seek professional help from a financial expert.
Here at Aged Care Decisions, we can’t offer you financial advice, but we can smooth the pathway for you.
If you need help to find aged care, do not hesitate to give us a call on 1300 775 870 or fill out this form and we will get in touch with you.