Care fees annuity | Payment plan for care home fees

A care fees annuity is essentially a payment plan for care fees. It’s a sort of insurance where you pay a one-time sum, and in return receive regular payments to use to pay for your care.

What is an annuity?

An annuity is a kind of payment plan. You buy the annuity for a lump sum, then in return you are paid smaller instalments for as long as you need them.

It’s a type of insurance and comes with similar benefits and risks that taking out any insurance policy carries, except for the large initial payment.

Can I buy an annuity for care home fees?

You can purchase a care fees annuity, also called a care fees payment or care fee payment plan. It’s intended to cover your care fees.

The big draw of taking one out is that you don’t know how long you will need care. An annuity offers protection that simply using your savings might not. Savings run out, whereas an annuity keeps paying for the rest of your life.

Types of care fees annuity

There are two types of care fees annuity. The key difference is how soon they start paying.

Immediate needs annuity

An immediate needs annuity can pay out as soon as it’s all set up. It’s an option if you are already living in a care home or receiving home care, and expect that this will be a permanent arrangement.

To be eligible you must be aged 60 or over and require professional care.

Deferred needs annuity

A deferred needs annuity is one you purchase in advance. It typically pays out one to five years after you’ve set it up, but the exact deferment period will be in your contract.

Deferred needs annuities tend to be cheaper but some providers offer no refund if you die during the deferment period.

Pros and cons of using an annuity to pay care fees

Advantages

• Reduced income tax. If the annuity is paid directly to your care provider then it doesn’t count as income and is not taxed.
• It can provide guaranteed, ongoing means of paying your care bill for longer than your savings alone could have done. You may get back more money than you put in.
• The annuity is bought with a portion of your overall wealth, which can help to protect and preserve the rest of your estate.
• If you also purchase capital protection, your family will still get some of the lump sum you paid back if you die earlier than expected.

Disadvantages

• Many plans are non-cancellable.
• The payments should keep up with inflation but they won’t necessarily keep up with rises in care home fees.
• If you don’t end up needing the money for care, you can still have the payments as income but they will be subject to income tax.
• If you don’t purchase capital protection, the money you paid may be non-refundable to your estate if you die earlier than expected.
• You may get back less money than you put in.

Should I buy a care fees annuity?

You should always seek expert advice on matters like this, because so much money is involved, and your circumstances are personal. There are specialist care fees advisers around who can give bespoke, specialist advice.