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.