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Care Fee Annuity offers complete peace of mind for immediate care costs

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A Complete Guide to Immediate Needs Care Annuity


The UK has an ageing population with an average life expectancy of 83.1 years for women and 79.4 years for men*, and thanks to advances in medicine, we’re living longer than ever before. While this is good news, it means that many of us will need the services of a carer when we get old, and with pension pots no longer as valuable as they used to be, how are we going to pay for it?

So, if you require care and wish to ensure you will always receive that care in your own home, to avoid running out of money then you may wish to consider an immediate needs annuity.

But what is Immediate Needs Annuity and how do you apply for it? In this expert guide, we’ll explain everything you need to know about this care fees insurance plan, including how it works, what advantages it offers, and how you can benefit from the tax-savings available.



What Is Care Annuity?


Care annuity (also referred to as an Immediate Needs Annuity (INA) or Care Fee Payment Plan) is a form of insurance that covers long-term care costs. It does this by providing you with a guaranteed income for the rest of your life, similar in some ways to a pension scheme, to pay for live-in care or residential care home fees.

According to research by LaingBuisson, a market intelligence provider, the average cost to stay in a residential care home in the UK is £33,852 a year, and this jumps to £46,436 a year for nursing homes with round-the-clock care. With the cost of residential care homes increasing by as much as 5% each year, Immediate Needs Annuity Plans provide peace of mind.

You’ll never run out of money to cover long-term care costs, even if you live beyond your life expectancy. And, if your monthly fees increase with inflation, you’ll never have to worry about covering any shortfalls or moving to a cheaper care home.



How Do Immediate Needs Annuity Plans Work?


To buy an Immediate Needs Care Annuity, you pay a one-off lump sum to an insurance company and, in return, they guarantee to pay a monthly instalment to you, or your UK registered care provider for the rest of your life.

It is an insurance plan that covers any shortfall between your pension and the cost of your care, based on the following criteria:

- Your age
- Your state of health
- Your life expectancy
- Your current care fees (if applicable)
- Current annuity rates

Insurance companies assess annuity rates individually with every care plan underwritten. Therefore, it is likely that you will pay less for Immediate Needs Annuity if you are older, in poor health, or have a reduced life expectancy due to a pre-existing health condition than you would if you are young and healthy.

You can choose a care annuity plan with a fixed annual increase of say 3 per cent to cover inflation hikes, or you can choose a plan that increases in line with RPI to ensure you never fall short.

You can also add a ‘capital protection’ or ‘cashback’ clause for an additional fee, which ensures that your family will receive a partial refund of your policy if you die much earlier than anticipated in your life expectancy calculation.



What Are The Advantages Of Immediate Needs Care Annuity?


There are many advantages of taking out a care annuity plan and, if you are concerned about rising care costs in the UK, and the fact that your pension may not cover care expenses in your senior years, it could be the perfect option for you.

The key benefits of this type of plan include:

1. Peace of mind: You will have a guaranteed income for care costs for the rest of your life

2. Beat Inflation: You won’t have to worry about rising inflation costs making your preferred residential care home unaffordable

3. Tax savings: You won’t have to pay tax on any payments providing they go directly to a UK registered care provider or care home

4. Flexibility: If you no longer need care, you can redirect payments from the annuity to your account, and reinstate them to your carer if necessary at a later date

5. Cash Back Option: If you die earlier than expected, your family will get a lump sum back from your initial payment

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And The Disadvantages?


There are pros and cons with any insurance plan, so it is advisable to speak to an independent financial advisor before taking out an immediate needs care annuity. While the advantages far outweigh the disadvantages with this type of policy, you should consider the following:

1. You cannot cancel care annuity plans after the initial 30-days cooling off period. As a result, you may receive less money back than first invested if you no longer require care, or you die earlier than expected and do not have a cashback clause in your policy.

2. If you decide to receive payments yourself, any amount you receive will be subject to income tax, and it may affect your state benefit entitlements.

3. If your immediate needs annuity policy doesn’t account for inflation, it may not cover all care costs down the line, and you or your family would be required to cover any shortfall.

*official stats from the Office for National Statistics



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