Did you find this article helpful? If so, please share so you can help others.... Share on FacebookTweet about this on TwitterShare on LinkedInShare on Google+Pin on PinterestEmail this to someone

Long Term Care & Immediate Needs Annuity – How to use it to meet your care costs

At UK Care Guide we understand that often the financial prospect of care can be daunting and difficult. That’s why we’ve compiled comprehensive articles on each method of paying for care to help you to make a sound decision.

In this comprehensive article we explore the option of taking out an Immediate Care Annuity, sometimes known as as a Long Term Care Annuity to cover the cost of care.

Getting this wrong can easily cost YOU £30,000.

That is why we recommend you read this article carefully, as we are pleased to have been able to help our site users avoid making a wrong, and very expensive, decision. A decision that once made can not usually be revoked.

This helpful guide includes all basic information you’ll need including:

– what types of immediate needs annuity are available

– the advantages and disadvantages of a care annuity

– who is eligible for an immediate care annuity

– how to find a professional financial specialist to help you make the right decision and avoid overspending by thousands of pounds

What is a Long Term Care Care Annuity?

A Long term care annuity is a way to use your savings through a third party to pay for your care. This is often an advanced option suitable for those who wish to plan ahead for care provision in the future.

Some people may prefer to take away the worry of paying for their care in the future by buying a guaranteed income for life from an insurance company.

This is done through a ‘Care Annuity’ or ‘Care Fee Annuity’. An annuity is simply a term that means an income is paid for the rest of your life.

As above, an Immediate Care Annuity is most suitable for individuals who are considering care provision ahead of time. If you are already accessing care then don’t worry – an Immediate Needs Care Annuity provides a similar financial benefit for those who are currently in residential care.

What does Long Term Care Annuity involve?

A ‘Long Term Care Annuity’ is an insurance policy which provides a lifetime income which you can use to pay for long-term care.

Firstly, you will agree with an insurance company to give them a lump sum amount. In return they will give you a monthly payment for the rest of your life. This is where the term ‘Long Term Care Annuity’ is derived from. The income is paid tax-free if the payment is made directly to your care provider.

The amount you receive can be fixed, or it can go up each year to cover any increasing care costs.

How much you will receive from your Long Term Care Annuity depends on a number of factors including your age, your health and how much you have to pay towards the annuity.

To give you a guide, we have provided an example below of what you need to pay as a lump sum to get an income of £10,000, which then increases in the future.

Your current age       How much a £10,000 annuity would cost you

          70                                                    £140,000

          75                                                     £105,000

          80                                                      £75,000

          85                                                      £60,000

There are a number of specialist insurers that offer Care Fee Annuities, so we would recommend that you speak to a specialist advisor who can review the market for you.

The difference between the best and worst annuity rates could easily be 30%.

For example, this could mean if you had £100,000 to pay towards an annuity, using a Long Term Care Annuity provider with poor rates could mean you have thrown away in the region of £30,000.

There are two types of Long Term Care Annuity. An Immediate Needs Care Annuity is suitable for individuals who are already in care or will imminently be moving into a residential home. A Deferred Care Annuity or Care Fees Annuity is the best option for those who are reviewing their care funding provision ahead of time.

How to pay for an annuity

One of the most popular ways to fund a care annuity is through releasing equity from your home.   This allows you to take a lump sum, tax free from your home. It basically takes the pressure away from you running out of money as you grow older and allows you to stay in your own home!

Here is a short video that explains how equity release works.

Try the equity release calculator below and see how much money you can get out of your house to help pay for your care Annuity. I think you will be surprised at what you could get……tax-free!

You can read more about how equity release works here.

What are the benefits and disadvantages of a Care Fees Annuity?

There are a range of benefits and drawbacks associated with taking out a Care Fees Annuity. These should be considered carefully before you make a solid decision.

Peace of mind – The main benefit of a Care Fees Annuity or Immediate Need Care Fee annuity is that both can provide you with peace of mind, knowing that you can expect an income to cover care costs for the rest of your life. When the money is paid directly to your care provider it is tax free – therefore saving some valuable funds.

Cap the cost of care – A Care Fees Annuity also enables you to effectively cap the cost of your care – as you only provide a set lump sum. This means that you can leave some as inheritance provided you don’t need to dip into it during your time in residential care.

Flexible- A Care Fees Annuity is suitable for both home care and residential or nursing care provision. They are fairly flexible – and can be transferred or used for care at home or a less expensive care home. This means in most cases you’ll never be downgraded or unable to afford your home. When your care provider changes, your annuity changes with them.

What are the risks with a Care Annuity?

There are however some important risks to think about when considering a Care Fees Annuity.

Decision cant be reversed – Once you hand over your lump sum to the insurer, it is their money.

It cannot be reversed or refunded. If you were unfortunately to die earlier than you may have expected, your money would not be returned, unless you specifically bought some protection against this at the time.

Doesn’t guarantee care costs are covered – It’s also possible that your care may not be fully covered – and many annuities don’t fully guarantee that the on going cost of your care will be covered indefinitely. This depends on your health condition over the years, inflation and the cost of care provision. In this instance you’d be liable for the extra cost, and would need to then top up or provide funds to plug the difference.

Impact on means tested benefits – You should also note that the income payments from the plan may affect your entitlement to some means-tested state benefits.

Potentially expensive – Annuities can often be seen as expensive, so you need to consider whether this is best way to spend what may be a large cash lump sum.

Who is eligible for a Care Annuity?

An Immediate Needs Annuity is required when a person has gone into care already and requires care provision immediately.

Normally this is in residential care circumstances. An Immediate Needs Annuity (or Immediate Needs Care Annuity) is an insurance policy that works in the same way as annuities in retirement. The person pays a set premium for a policy that will pay a regular income towards their care costs for the rest of their lives.

Anyone over the age of sixty is eligible for an Immediate Needs Annuity if they need to be cared for either in a registered care home or by a non-registered care provider in their own home.

The level of the premium depends on a person’s age, health and their choice of care home or care provider. Each plan is individually underwritten for an individual’s personal needs using information provided by their GP. This means that applicants do not have to undergo a medical examination.

The benefits generated from an Immediate Needs Annuity are tax free if they are paid directly to a registered care provider.

They can also be paid directly to the policy holder if preferred – for example, if they are receiving care at home by non-registered care providers, they may prefer to receive the funds directly.

However the down side to this is that the benefits from the Immediate Needs Annuity will be taxed in the same way as a purchased life annuity would be.

Care Annuities are fairly flexible. For example, you can also choose to have the benefits you receive increased every year at a rate offered by the product provider. This is usually in line with inflation.

You can also choose the month in which the rate increases to coincide with the month the care provider increase their fees. In turn this offers you peace of mind and ensures that your fees are fully covered at every step of the way.

Providers regulate care homes and home care agencies, as well as other medical establishments, to ensure they meet current care standards.

As above, it is important to note that if your care costs exceed the income provided by the plan in the future then you will be responsible for the difference. Care Annuity plans, including capital protection, have no cash value at any time and cannot be cancelled or reversed.

One frequently voiced concern is the worry that a person could die soon after taking out the plan. In this instance you can opt to protect some of the purchase price to ward against this in the early years. This is typically known as capital protection.

This however will increase the purchase price – so it’s a risk in itself.  The higher the value of the funds you protect, the greater the purchase price will be.

How do I go about buying an annuity?

There are a number of steps involved in the process of buying an annuity. The first stage is to have your plan underwritten. This allows you or your advisor to compare options also and consider options available for both immediate and deferred policies.

If a care funding plan incorporating an annuity is your chosen or recommended solution, it is best to shop around among all available providers in order to find the most cost-effective solution.

Make sure that you fully understand the options available to you when buying an annuity such as capital protection, a deferred period, escalation and how the plan can help with inheritance tax planning. However if these terms are alien to you, the whole process can feel daunting.

This is why our most crucial piece of advice for those considering any type of care funding, but especially anyone looking into buying an annuity, is to seek independent, professional advice.

Ideally it’s advisable to seek support from an advisor who understands all funding options available to pay care fees. They should also understand how that relates to you and your current needs and future wishes.

It’s a good idea to check credentials and qualifications of advisors before making a choice. A Later Life Accredited Adviser who is a member of SOLLA (Society of Later Life Advisers) is always a safe bet – this is someone who has specific experience and expertise in the care funding field.

They will know how to help anyone considering buying an annuity and offer the best advice in line with their preferences, requirements and financial situation.

How do I choose a Care Annuity provider and who can help me?

There are plenty of Care Annuity providers to choose from – but with ample choice comes confusion and stress. How do you know which will provide the best service and the most suitable product for you?

A financial advisor will be able to offer sound advice, assessing the providers based on the quality of their products and previous customer experience. If you choose not to speak with a professional then it’s best to check reviews for all providers before making a shortlist. You can then assess each product individually to weigh up the benefits and possible issues before making an informed decision.

When making your decision, ask others who have purchased a Care Annuity for their opinion on their provider. You can also check online reviews and testimonials to see how fairly each is rated by customers past and present.

Try the equity release calculator below and see how much money you can get out of your house to help pay for your care Annuity. I think you will be surprised at what you could get……tax-free!

How can I locate a reputable financial advisor?

At UK Care Guide, we can help you in one of 2 ways.

It’s important to ensure that you are dealing with someone who understands the market and your requirements fully. An experienced financial advisor will have up-to-date, in-depth knowledge of Care Annuity providers and will be able to appreciate your personal preferences, putting together a plan in line with your requests.

Option 1Search our directory of financial advisors

Option 2 – Leave your contact details below and we will out you in touch with a suitable advisor

What should I do next?

If you are thinking about taking out a Care Annuity, you should firstly explore other options open to you to ensure that this is the most suitable.

When considering various ways to fund your care home costs, and in particular buying an annuity, we always recommend that you speak to a specialist financial advisor.

This is an accredited, qualified person who possesses specific experience in assisting individuals needing to fund care. They are completely impartial, so they won’t try to sell you any products from a particular company, and provide guidance with your best interests at heart. They will be able to:

– Advise you on any alternative funding options that may be available

Review the annuity market and advice you on which provider will give you the most money for your cash sum – rates can differ significantly and change daily!

– Help you tailor an annuity that is right for your circumstances. This would include looking at whether it should increase in payment, can the value be protected on an early death, can a payment be made to a surviving spouse etc.

Care Annuities are complex products – without sound advice, you could make the wrong choice. As Care Annuities are irreversible this could be catastrophic for you and your family

Did you find this article helpful? If so, please share so you can help others.... Share on FacebookTweet about this on TwitterShare on LinkedInShare on Google+Pin on PinterestEmail this to someone