Please note: this article was not written by a financial or legal specialist, and does not cover every circumstance. Please consult a specialist before making any financial or legal decisions. 

An immediate needs annuity means that you pay a one-off lump sum and the annuity will pay you a guaranteed income in order for you to pay residential care home fees or care at home costs.

They can also be known as ‘immediate care plans’, ‘care fees plans’ or ‘care fees annuities’.

Buying an immediate needs annuity to pay care costs

An immediate needs annuity is a way for you to provide funding for long-term care in your old age.

Buying an immediate needs annuity means that you invest money now in order to pay a regular tax-free income to your regulated care provider in order to cover the cost of your care, for as long as care is needed.

Questions about funding care?

Care Sourcer’s friendly care experts are on hand to provide guidance on typical care costs, help you explore your funding and benefit options, or even negotiate care fees on your behalf. Call us on freephone:

0800 098 8299

(Mon-Fri, 9am-5pm)

To buy an immediate needs annuity you make a one-time lump-sum contribution This is converted into an ongoing, guaranteed stream of income for a specified period of time or for a lifetime. 

You can then use the income to directly pay your care home fees.

Cost of an immediate needs annuity 

The cost of arranging an immediate needs annuity can vary depending on a number of factors. 

These factors include your age and health, the expected level of current and future care fees, and the formula that your annuities provider uses to calculate your annuity rate.

An immediate needs annuity is underwritten, so the fewer health issues you have, the less it will cost. 

A cheaper option to an immediate needs annuity is a deferred annuity, where the income doesn’t start immediately, but rather at some point in the next five years.

Find out more about deferred annuities to pay for care costs

Benefits of an immediate care annuity

The main benefit of an immediate care annuity is that you know the cost of your care will be covered for as long as you need it – however long that is.

Ordinarily, if you were living in a residential care home and became unable to continue to pay your care fees yourself, the local authority would step in and pay them instead. This means you may find that the local authority allowance doesn’t cover the cost of the residential home you have chosen.

In this circumstance, unfortunately you might need to move to an alternative care home.

By purchasing an immediate care annuity, you will guarantee that you won’t run out of money to pay your chosen care homes fees. If you decide to move care homes, you can transfer your policy from one care provider to another.

Also, because the income goes directly towards the cost of your care it doesn’t count as your income, so is not subject to income tax. 

Leaving residential care when you have an immediate needs annuity

If you need to or decide to leave residential care, then the income that was being paid to the care provider will instead be paid directly to you. 

However, it is important to note that this income will then be taxed. For this reason, it’s not advised to purchase an immediate needs annuity if you know your care will be short-term only.

If you die before the immediate needs annuity is paid out

You pay a lump sum for your immediate needs annuity and no matter how old you live to be, the annuity will always continue to pay out.

When you die, the annuity payments will stop. However, some care fees plans may offer a lump sum payment to your beneficiaries if you die within a certain time period, via death protection. Check this before you proceed with purchasing the annuity.

Finding a regulated care provider

In order for the annuity payments paid directly to the care provider to be tax-free, the care provider needs to be registered with the regulatory body in their area of the UK.

In England this is the Care Quality Commission, in Scotland the Scottish Care Inspectorate, in Wales the Care Inspectorate Wales and in Northern Ireland the Regulation and Quality Improvement Authority.

All care providers who advertise their services on the Care Sourcer website are qualified with their local regulatory body.  Click here to search and compare all the local care homes and care at home providers in your area for free.

Consulting a care fees adviser about immediate needs annuities

Buying any financial product is a big purchase. By consulting a care fees adviser you will get impartial and expert advice tailored to your exact financial situation, given by someone who knows the care system inside out. This means you can make the best choice for your specific circumstances.

The care fees adviser will ask your detailed questions about your circumstances and care needs. Using this information, they  will make you aware of all your options when it comes to paying care fees, and also give you advice on how you can proceed, including suitable financial products and services.

More about consulting a care fees adviser

If you decide to purchase an immediate needs annuity, your annuity provider might offer you a cooling-off period (usually 30 days) after buying the annuity, in which you can change your mind. 

Check whether a cooling-off period applies when you are enquiring about the annuity.

Summary

What is an immediate needs annuity?

An immediate needs annuity (also known as an ‘immediate care plan’, ‘care fees plan’ or ‘care fees annuity’) is a way for you to provide funding for long-term care in your old age. 

Buying an immediate needs annuity means that you invest money now in order to pay a regular tax-free income to your regulated care provider in order to cover the cost of your care, for as long as care is needed.

What happens if I have an immediate needs annuity and then leave residential care? 

If you need to or decide to leave residential care, then the income that was being paid tax-free to the care provider will instead be paid directly to you. However, the income that comes to you will then be taxed.

If I decide to move to a different residential care home, will my care fees payments still be covered?

If you decide to move care homes, you can transfer your immediate needs annuity policy from one care provider to another.

Should I consult a care fees adviser before buying an immediate needs annuity? 

Buying any financial product, including an immediate needs annuity, is a big purchase. By consulting a care fees adviser you will get impartial and expert advice tailored to your exact financial situation, given by someone who knows the care system inside out. This means you can make the best choice for your specific circumstances.

Can I change my mind after I have purchased an immediate needs annuity?

Your annuity provider might offer you a cooling-off period after purchase (usually 30 days) in which you can change your mind. After this, you won’t be able to cancel the annuity or receive a refund. 

What happens if I die before the immediate needs annuity is paid out?

When you die, the annuity payments will stop. However, some care fees plans may offer a lump sum payment to your beneficiaries if you die within a certain time period. Check this before you proceed with purchasing the annuity.

Questions about funding care?

Care Sourcer’s friendly care experts are on hand to provide guidance on typical care costs, help you explore your funding and benefit options, or even negotiate care fees on your behalf.

Call us on freephone: 0800 098 8299 (Mon-Fri, 9am-5pm)

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