Financial planning during old age is becoming increasingly important as we live for longer and as the cost of living goes on rising. One of the most important aspects of retirement can be the prospect of the potential need for long term care. There are many ways to plan your finances in order to meet your needs, whether it is the expenses of day-to-day life, or the costs of long term care.
If you or a loved one are already receiving, or will start receiving care soon, there are ways to optimise your resources so that the costs of care do not end up exhausting your entire life savings. One effective tool to help with long term care costs is an immediate needs annuity.
An immediate needs annuity is an annuity designed for someone in imminent need of care or already receiving care. The main advantage of an immediate needs annuity and what makes it an attractive option for those looking at the prospect of meeting care costs over a long period of time, is that it continues to pay the fixed amount for as long as you need care.
Immediate needs annuities can be suitable for those who are facing impairment which makes it necessary for them to receive care. This could be either mental impairment or physical inability to perform at least one ‘Activity of Daily Living’. The ADLs are essentially markers that define the ability to live independently and include being able to wash yourself, dress yourself, feed yourself, be mobile in the house and matters pertaining to continence.
Immediate needs annuities work on the same principle as conventional annuities in that they are based on a cash lump sum, in exchange for which you get regular payments from the insurance provider. There are different providers for immediate needs annuities, and just like with any other annuity, it is advisable to shop around for the best rate.
Unlike conventional annuities, however, the payments made by an immediate needs annuity are tax free, provided they are used directly to meet recognised costs of long term care. Also, an immediate needs annuity will be underwritten individually for each case, depending on the individual circumstances. Once the payment has been made, there are no further reviews, and there is usually a 30 day notice period in case you change your mind. The nature of the health problems and life expectancy play an important role in determining the amount that is paid out. The shorter the expected term of payment, the higher the payment is likely to be.