Immediate needs annuities for care fees
An immediate needs annuity turns a lump sum into a guaranteed income toward care fees for the rest of someone's life. This guide explains how it works and who it suits.
An immediate needs annuity, also called a care fees payment plan, is an insurance product for someone already in or about to need care. You pay a one-off lump sum and the insurer pays a guaranteed income toward care fees for the rest of the person's life. It can cap the cost of care and protect savings against a long stay, but it is an FCA-regulated product, the lump sum is usually gone if the person dies early, and you should take authorised advice before buying one.
At a glance
- What it isA care fees payment plan, a type of annuity
- You payA one-off lump sum
- You getA guaranteed income toward fees for life
- Main benefitCaps the cost of a long care stay
- Main riskLump sum may be lost if death is early
- RegulationFCA-regulated; take authorised advice
What is an immediate needs annuity?
An immediate needs annuity is an insurance plan bought for someone who already needs care, or is about to. In exchange for a one-off lump sum, the insurer pays a guaranteed income for the rest of that person's life, designed to go toward their care fees. It is sometimes called a care fees payment plan or an immediate care plan. Paid directly to a registered care provider, the income is usually tax-free.
Immediate needs annuities are regulated by the Financial Conduct Authority. We provide information here and can refer you to an FCA-authorised care-fees specialist who can quote and advise. We do not give regulated advice, and these plans should only be bought after advice from an authorised adviser.
How it works
- An adviser assesses the person's health and current care fees.
- The insurer prices a lump sum based on age, health and the income needed.
- You pay the lump sum, usually from savings or the sale of a home.
- The insurer pays a guaranteed income toward fees for the rest of the person's life.
- If care fees rise, an escalating plan can increase the income each year, for a higher cost.
The price depends heavily on health. Because the income is paid for life, the insurer is in effect pricing how long care is expected to last, so someone with significant health needs may secure a plan for a lower lump sum than someone in better health.
Who does it suit?
An immediate needs annuity tends to suit a self-funder who wants certainty: someone who is worried about money running out over a long stay and who values a fixed, capped cost over keeping the full lump sum invested. It is less likely to suit someone whose health suggests a short stay, or someone who would rather keep their capital accessible.
| May suit | May not suit |
|---|---|
| A self-funder wanting a capped, certain cost | Someone expecting a short stay in care |
| Worry about outliving savings over a long stay | Someone who needs to keep capital accessible |
| A wish to protect remaining estate from open-ended fees | Someone who prefers to keep funds invested |
The pros and cons
| Pros | Cons |
|---|---|
| Guaranteed income toward fees for life | The lump sum can be large |
| Caps the cost of a long care stay | If death is early, the lump sum may be largely lost |
| Income paid to the care provider is usually tax-free | Reduces the capital left for the estate |
| Protection options can be added | Protection and escalation increase the cost |
Most plans offer a capital protection option, which returns part of the lump sum if the person dies early, for an additional cost. An adviser can explain the trade-offs for your situation.
Immediate needs annuities for care fees: common questions
What is an immediate needs annuity?
It is a care fees payment plan: an insurance product bought for someone who already needs care. You pay a one-off lump sum and the insurer pays a guaranteed income toward care fees for the rest of that person's life, usually tax-free when paid to a care provider.
What is the downside of an immediate needs annuity?
The lump sum can be large, and if the person dies sooner than expected much of it may be lost, unless you pay extra for capital protection. It also reduces the capital left for the estate. Because it is irreversible, it should only be bought after authorised advice.
Who should consider an immediate needs annuity?
It tends to suit a self-funder who wants a capped, certain cost and is worried about savings running out over a long stay. It is less suitable for someone expecting a short stay or who needs to keep their capital accessible. An adviser can assess whether it fits.
How much does an immediate needs annuity cost?
The lump sum depends on age, health and the income needed, and is priced individually by insurers. Someone with significant health needs may secure a plan for a lower lump sum. We do not quote prices; an FCA-authorised adviser can obtain quotes for your situation.
Do I need advice to buy an immediate needs annuity?
Yes. These plans are FCA-regulated and effectively irreversible, so they should only be bought after advice from an FCA-authorised care-fees specialist. We provide information and can refer you to an authorised adviser, but we do not give regulated advice.
Need help with your own situation?
We can introduce you to an FCA-authorised care funding specialist who will look at your circumstances and the options.