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?

Typically people use an immediate needs annuity to cover part of their care costs and fund the rest from their income and any other resources.

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.

Most care plans provide an income that increases either with inflation or a set amount each year to help you cope with future rises in care costs.

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 buy the plan

Often people pay for the plan by taking out an equity release scheme or downsizing their home.

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 fundingopens in new window
  • If you think you might need to pay care costs in the future, an alternative is a deferred need care fee plan. This works in the same way as an immediate need plan except that the income does not start straight away. Instead it starts some months or even years in the future.

Risks

Once you’ve taken out an immediate need care fee payment plan, there is a cooling off period (usually 30 days) during which you can change your mind. But, after that, 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 help pay for care against losing the lump sum you’ve invested if you were to die earlier than expected.

Your care costs might increase faster than the income from you plan. This means you could still have a shortfall in future that you need to meet in other ways.

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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