Premiums for long-term nursing care could fall by up to 25% after the Government agreed to foot the nursing care costs of elderly people, leading long-term care insurers claim.

Bupa Care Services and PPP Lifetime Care both said the funding commitment could have a dramatic effect on the long-term care market.

Paul Bennett, marketing manager of PPP Lifetime Care, said: "The Government's pledge to fund nursing care on a universal basis could result in an average reduction of up to 25% in care costs."

He said that this margin may be reflected in premiums although he stressed the Government has yet to lay down precise guidelines on the definition of nursing care.

"This makes it difficult to plan on a case by case basis," he said.

Bupa Care Services, the largest provider of care to the elderly in the UK with 26,000 customers, welcomed the investment. A spokesman said: "This package may lead to a reduction in premiums for policyholders as nursing care costs would be excluded from long-term care costs."

However, the health insurer called on the Government to issue clearer guidance to health authorities on the exact demarcation between the costs of nursing and residential care.

The commitment is in the Government's long- awaited response to the Royal Commission on Long Term Care which was published in March 1999.

Health secretary Alan Milburn has pledged that nursing services for care- home residents will be fully-funded by the NHS from October 2001. In addition, the first three months of residential care will be free from means-testing from April 2001. The maximum care has been increased slightly from £16,000 to £18,000.

It estimates the measures will benefit up to 65,000 people each year. But Age Concern said this will offer scant comfort to the 40,000 elderly home owners each year who have to sell their homes to meet care bills.

The proposals are part of a £1.4bn funding package for older people contained in the government's NHS Plan.