Tag Archives: Long Term Care

What if the Annuity Payable Exceeds My Care Fees?

An immediate needs annuity is a product designed to help those already in care to meet the costs of long term care. The annuity, in exchange for a lump sum fund makes guaranteed payments towards care until the end of life. The payments are tax free so long as they are paid to a recognised care provider.

One of the main concerns that people have about immediate care annuities is that the amount to be paid out is fixed and does not change over time. This means that even if the cost of care increases, the amount payable through the annuity remains constant, and any difference must be met by the client.

A flip side of this scenario is if the cost of care reduces for any reason. The two main reasons that the cost of long term care could reduce over time is because of a change of residential care home or nursing home, or because you are awarded registered nursing care contribution from the NHS.

In case the amount paid by a care annuity exceeds the cost of your care, then it may be possible to convert your immediate needs annuity to a purchased life annuity. This will enable you to receive the additional payments. However, it is important to note that this additional income will be taxable by the Inland Revenue at the savings rate of 20%.

The tax rate applicable is that of the income bracket into which you will fall. Your total income from all sources will be considered, and this will include any other annuities, savings and investments. If you fall into a higher tax bracket, then the additional annuity payment will be charged at a higher rate.

A care annuity is a niche financial product designed to meet very specific needs. It is designed for those faced with the prospect of potentially unending costs of care, and who also want to protect their savings and assets from being corroded by care costs.

If you are considering opting for an immediate needs annuity to meet the costs of on-going care, it is important to seek advice from a qualified financial advisor who can give you impartial and objective advice not only about whether it is the right option for you, but also advise you about the different implications of having an immediate needs annuity.

What is an Immediate Needs Annuity?

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.