Immediate needs annuity

If you need a regular income now to pay for care at home or in a care home, an immediate needs annuity (or immediate need care fee payment plan) could be worth looking at. The income from this type of annuity is tax free if it is paid directly to the care provider.

What is an immediate needs annuity?

An annuity is a type of insurance policy that provides a regular income in exchange for an upfront lump sum investment.

When they are used for long-term care, they provide a guaranteed income for life to pay for care costs.

This type of annuity can be known as an:

  • Immediate care plan
  • Immediate needs annuity
  • Immediate need care fee payment plan

It’s very important to shop around for an annuity. The UK Care Guide estimates the difference between the best and worst annuity rates could see you throwing away £30,000 - if you had a £100,000 to buy an annuity with. A specialist adviser can help you avoid this.

How an immediate needs annuity works

Did you know?

The average cost of an immediate need care fee payment plan is £69,000.

Source: PSSRU, Immediate Needs Annuities in England, Jan 2011

An immediate needs annuity is designed to cover the shortfall between your income and the cost of your care for the rest of your life.

The price of a plan is based on how much income you need and the insurance company’s assessment of how long you’re likely to need it for.

How much you pay upfront will depend on:

  • Your age
  • Current annuity rates
  • The level of income you need
  • Your health and life expectancy (the poorer your health or shorter your life expectancy, the cheaper the plan will be)

The income from the plan is tax free if it is paid directly to the care provider.

If you’re worried about future fee price increases, you can build the cost of covering them into your care plan.

For an extra cost you can also put in a ‘capital protection’ clause. This allows your family to get some of the lump sum payment back if you were to die early.

Immediate need care fee payment plans could be suitable for you if:

  • you’re already in a care home, you’re about to move into one, or you’re receiving care at home
  • you want the peace of mind of knowing that you have a regular income for life that can be used towards your care costs, whatever happens
  • you have the money available to invest
  • you want to cap the cost of your care, potentially safeguarding your remaining capital

Immediate need care fee payment plans are NOT for you if:

  • you don’t need to pay for care immediately
  • you think you might only need care temporarily
  • you might want your money back in the future
  • there’s a good chance that you would be entitled to NHS Continuing Care funding


Once you’ve taken out an immediate need care fee payment plan, there’s no going back.

You won’t be able to cancel the plan and get some of the money back if, for example, you stop needing care.

You also need to weigh up having a regular, secure income to pay for care against losing the lump sum you’ve invested if you were to die earlier than expected.

It’s also possible that your care may not be fully covered – and many annuities don’t fully guarantee that the ongoing cost of your care will be covered indefinitely. For more information on a this go to the UK Care Guide website.

Other ways to fund your long-term care

An immediate needs annuity is only one way to pay for long-term care:

Seek advice and help

The options for funding your long-term care are complex. You should always seek professional advice to make sure you’re making the most of your money and not investing in a product that doesn’t meet your needs.

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