How can an immediate needs annuity be used to pay for my care?
Many families are faced with having to finance the long-term care they need, whether this is in a care home or in their own home. This is commonly referred to as self-funded care. The need to pay for your own care, can be very worrying and overwhelming. We know most people would prefer to stay in the comfort and familiarity of their own home and not move to a care home. For many moving into a care home means there is a family home that can be sold to pay for care home fees. If you choose to receive care in your own home, you do not have this as an option to finance care.
However, there are ways in which you can finance the self-funded care you need, including an immediate needs annuity, sometimes referred to as a care fees annuity. Here we explain everything you need to know about an immediate care needs plan so you can consider your options.
What is an immediate needs annuity?
An immediate needs annuity or care fees annuity is a type of insurance policy. It is also known as an immediate care fees plan. The person who requires care will be assessed to understand their health and care needs now, with a projected outcome for what care will be required in the future.
Following an assessment, a premium is payable based on the outcome of the assessment with a view to covering weekly care fees, whether in a residential care home or through a live-in care service for as long as it is needed.
The premium level depends on the person needing care’s age, health and choice of care provider, and therefore the cost of care. A annuity for care fees can be purchased as soon as the need for care provision arises. It will benefit the person needing care immediately.
The income from an immediate needs annuity that is paid directly to you or your loved one’s registered care provider, is tax exempt under current HMRC policy. The annuity will also be index-linked in order to protect against the effects of fluctuating inflation.
Who is eligible for an immediate care fees annuity?
If you are over the age of sixty and you are receiving care either in a residential care home or in your own home by a home care provider, you are eligible for an immediate needs annuity. The care home must be a registered with the Care Quality Commission (CQC), however a home care provider does not need to be registered to provide care at home.
A care fees payment plan is suitable for anyone who needs long-term care and is eligible for one. It is a particularly attractive option for those who choose to receive care in their own home. It means the cost of care can be paid and the person needing care can remain in the comfort and familiarity of their own home.
It is not really suitable for someone who is receiving care towards the end of their life, or who has a life-limiting illness or complex care need. The most common concern among families considering an immediate fees annuity is that their loved could die soon after taking out the plan and paying the premium. What are the advantages and disadvantages of a care fees annuity?strong>
There are many significant benefits to setting aside money, whether that is savings, pensions or investments in later life to purchase an immediate needs care plan in later life:
- Peace of mind and reassurance that the cost of care will be part or fully covered for the rest of your life
- Reduces financial burden on the rest of your estate leaving more for your family to inherit
- The money you receive from the annuity will not be taxed, unlike any other annuity
- The plan will consider the rate of inflation and raise at a rate that mitigates against inflationary rises
There are also some disadvantages of taking out an immediate needs annuity:
- The plan may not be sufficient to cover care costs to meet your needs in the future. This may be due to the rising cost of care or an increase in care needs that was not determined when the plan was taken out.
- Once you buy the annuity you cannot change your mind, although some providers do offer a cooling off period, which is typically 30 days.
- Depending on what you receive from your annuity, you are unlikely to be eligible for another other means-tested benefits from your local authority
Case study: How an immediate care fees annuity helped eric fund live-in care
Eric and Alma had been married for over 65 years. Sadly, Eric’s deteriorating health meant that a move into a care home seemed an inevitable end to their life together. Alma and the family wanted him to stay at home but knew that this would not be an easy decision, as Eric needed specialist personal care and Alma was unable to provide this. As a potential solution, the family considered having a live-in-carer and both arranged a meeting with The Good Care Group. Following our assessment, we knew we could deliver a live-in care package to meet their needs.
Expert advice from Symponia
To help them explore the best way to fund the care they needed, they talked through the option of equity release with the local Symponia member, who suggested that the whole family became involved in the discussions. Symponia is an organisation dedicated to providing independent financial advice to families so they can finance their private care fees. A key decision was how much money should be released. Did the family just take enough for one year and continue to draw down each subsequent year, until the maximum sum had been exhausted.
Exploring an immediate needs care plan
To help the family get the peace of mind they desired, the advisor suggested they explored an immediate care plan. They calculated the income Eric and Alma received, by way of pensions and other investments and compared that to their expenses, which had to take into account not only the household costs, which largely remained unchanged, but importantly Ericks care costs.
After assessing Eric’s health, the cost of the immediate care plan, with a built in automatic 5% inflation was £92,000. Eric and Alma then used equity release to buy the care plan. As their property was valued at over £500,000, the release of equity was just under 18.5% of the total value.
This meant that Eric was able to receive the high-quality care at home he needed, and they both had the peace of mind that his needs would be provided for, for the remainder of his life. Much needed reassurance when they needed it.
How much does a care fees annuity cost?
When you and your family decide that an immediate needs annuity may be the best option to fund the cost of your care, you should consult with a financial advisor who specialises in long-term care planning. The advisor will then discuss your specific needs and circumstances which may impact the annuity rates you will be offered by a provider. They will then discuss different annuity providers with you and help you make the best choice to meet your personal circumstances. Make sure the advisor is regulated and is an independent financial advisor. This means they are not tied in commercially with one specific annuity provider. This gives you peace of mind that their recommendations are impartial, and they are advising what is best for you.
The next step would be to have a medical assessment which will help the annuity provider decide what immediate care needs plan to offer, and what the premium will be. They will look at your age, health and life expectancy.
How to find an immediate needs annuity provider
When you and your family decide that an immediate needs annuity may be the best option to fund the cost of your care, you should consult with a financial advisor who specialises in long-term care planning. The advisor will then discuss your specific needs and circumstances which may impact the annuity rates you will be offered by a provider. They will then discuss different annuity providers with you and help you make the best choice to meet your personal circumstances. Make sure the advisor is regulated and is an independent financial advisor. This means they are not tied in commercially with one specific annuity provider. This gives you peace of mind that their recommendations are impartial, and they are advising what is best for you.
The next step would be to have a medical assessment which will help the annuity provider decide what immediate care needs plan to offer, and what the premium will be. They will look at your age, health and life expectancy.
How to find an immediate needs annuity provider
The Good Care Group works in partnership with Symponia, a professional body representing over 120 financial and legal advisors who are all specialists in the area of financing long-term care fees and providing immediate needs annuities. This gives you peace of mind and reassurance that you are receiving the very best advice.
seful resources
UK Care Guide
The UK Care Guide is a useful online resource for all elderly care needs, bringing information together on a range of topics, including information an immediate needs annuity.
The Moneyhelper website is another useful resource that brings financial and pension information together from three government financial guidance providers; the Money Advice Service, the Pensions Advisory Service and Pension Wise. They provide information on care fees annuities.
The Care Fees Annuity website has a cost of care calculator that provides an estimate as to what premium you may need to pay based on your circumstances.
Talk to us about your live-in care needs
Call our friendly and approachable care advisors today to find out about the cost of live-in care. We can then support you to explore what financing or funding is available to you and your family.