Immediate care annuity

This page was last updated on 1 November 2020

Immediate care annuity

This article addresses some of the most common questions and worries about care annuity.

It gives you an explanation of:

  • What an immediate care needs annuity is
  • How a care annuity works
  • How the terms and rate of a care annuity change
  • Who might use this type of product
  • The pros and cons of immediate annuity for care

So that you can use this information to make an informed decision about whether an immediate needs annuity looks like a good choice for your circumstances.

Topics that you will find covered on this page

1 – What is a care annuity?

One of the biggest worries for older people is funding care in the long term. There is no way of knowing for certain how long you will need to live in a care home, and given that the cost of care can average at over £1000 per week, it is important to think carefully about a care funding plan for the future.

An immediate care annuity is an option that can give you peace of mind. Essentially, it is an insurance policy that covers your care fees for the rest of your life by providing you with a guaranteed lifetime income. Similar to a pension in some ways.

You buy the care fees annuity upfront with a one-off premium payment to an insurance company. The amount of money that the policy will cost you depends on:

  • How old you are. If you are of an older age, you will pay less upfront.
  • The state of your health. The healthier you are, the more you can expect to have to pay.
  • The level of current and future care fees that you’re anticipating

It can help knowing that you will never run out of money for your long term care, even if you live well past your life expectancy.

Your insurance policy will mean that you always have the funds to pay for your care home fees without your family needing to make up any shortfall.

Whist they wont help you avoid care home fees what they will do is help you plan the cost of going in to a care home.  They are unlikely to be suitable for planning home care costs

Here is a video from UK Care Guide explaining how a care annuity works.

Types of care home annuity

There are two main kinds of annuity for care home fees:

  • An immediate needs annuity. This gives you funding immediately for the care that you need, starting straightaway.
  • A deferred annuity. This policy funds any care you may require in the future, starting between 1 and 5 years in the future. These plans are less expensive but have more risk involved.


You should speak to someone such as a professional adviser for more advice on which product is best for your situation.

2 – How does an immediate annuity work?

An immediate need care fee annuity is a type of annuity that you can take out while in retirement.

You make a one-off lump sum payment to the insurer, and then they guarantee that a regular income will be paid directly to your care provider for the rest of your life.

How much are annuity rates?

Care fee annuity quotes range between individuals and providers. This is because every immediate annuity care plan is underwritten.

That means that the annuity service insurers need to collect information about the state of your health. They may speak to both your GP and your care home or home care providers to receive these details.

Insurers would like to know about any factors which may affect your life expectancy before deciding your annuity rates and telling you what you need to spend on a premium.

The exact amount you need to pay for this premium will, therefore, depend on your age, your health, and the estimates for the total cost of your care funding. 

The premium you pay will also be impacted by the percentage of capital you want to have the ability to protect in case of early death. The higher the percentage, the more the product will cost at the outset.

If you would like the income payout to increase in line with inflation – so that you are insured against the costs of your care plan increasing in the future – then your premium will also cost more.

Many older people use money from their savings, state pension, or from equity release to make these initial annuity payments.

You should speak to an advisor to learn more about the cash figures you may need to pay for an immediate needs annuity service. They can help you choose the best course of action when it comes to affording your care costs.

Who is an immediate care annuity suitable for?

An immediate care annuity may be suitable for customers who fit the following profile:

  • Someone over 60 years of age.
  • Someone who is already in nursing care or a care home, or someone needing care support in their own home.
  • Individuals who have health issues and would like more peace of mind about the payment of their future nursing care contribution fees.
  • Individuals who are likely to be expected to pay the full care costs themselves from their pension savings in retirement, and don’t want to use up all their savings or sell their house in the process of affording their care price.
  • People in retirement who wants to protect the assets they have for their family estate. For example, you may want to protect your house and its market value.
  • People who have enough money to spend on the premium payment and don’t think they will want that money back in the future.


An immediate needs annuity is not be intended for those who only need temporary care, or those who do not have fees they need to pay now. In those cases, you should look into deferred annuity schemes.

It is essential that you understand your legal rights and how the features of immediate needs annuity work before signing your consent to an annuity.

You should seek professional, independent advice about the options you have available.

For example, an adviser can talk you through the add-ons such as: a deferred scheme, death benefit payouts, escalation, capital protection, and options for inheritance tax planning.

"One of the biggest worries for older people is funding care in the long term. There is no way of knowing for certain how long you will need to live in a care home, and given that the cost of care can average at over £1000 per week, it is important to think carefully about a care funding plan for the future."

Where an immediate needs annuity is paid directly to the care provider the benefit is?

When annuity income is paid directly to a registered care provider, the money is tax free.

However, one of the terms of an immediate care plan annuity is that the policy has a flexible payee. So, if you no longer need care, the income can be changed to be transferred directly to the customer, rather than to your care providers.

When this happens, however, you should be aware that the money will be subject to income tax.

Later, if you are receiving care once again and must pay care costs, you can switch back to making each income payment directly to the nursing home. Then the money will once again be tax free.

3 – How much does an immediate annuity pay?

An immediate needs annuity will continue to contribute funds towards the cost of your care plan for the rest of your lifetime.

Because an annuity continues to fund your care plan in this way, it is hard to place a specific estimate of how much you will receive via income payments. The payments will continue for the remainder of your lifetime – so you will receive more money the longer you live.

Ultimately, spending pension money on guaranteeing your care plans payments for life carries many risks. You may end up spending more on the premium rate than you actually access later down the line.

It is also important to remember that long-term annuities care insurance may impact your tax position and your eligibility for state benefits. So, even though the cost of your care plans will be covered, you may lose out on access to money in other ways.

Potential clients should always get in contact with an adviser who has professional experience of the field before making any payments or signing any agreements to avoid a costly problem in the future.

4 – Is a long term care annuity a good idea?

There are several advantages and disadvantages that it’s important to consider when it comes to taking out a long-term care annuity.

It is essential that you speak to a specialist financial adviser before making a decision about whether an immediate needs annuity is the right option for your individual conditions.

Advisors can talk you through who are long term care annuity providers, give you an estimated immediate needs annuity quote, and discuss alternative ways of paying for care costs.


  • It may feel reassuring and give you peace of mind to know that your family will never have to pay for your care home place.
  • One of the other main benefits is that the income you get is tax free if transferred directly to the care provider.
  • Another benefit is that income is also guaranteed to be paid to the registered care provider for the rest of your life.
  • Some annuity providers allow you to build in additional protection for your family. For example, if you purchase capital protection alongside your plan and die before your life expectancy predicted, then your beneficiaries will receive a percentage of the capital back according to the difference.
  • You can set your product to increase in line with inflation each year. However, this is one of the benefits that will increase the amount of the initial premium payment rate.
  • Your family can get a payout after your death.
  • An immediate needs annuity allows you to cap the cost of your care needs. This is a benefit because it allows you to protect more assets for your estate.


  • The lump sum payment for an immediate needs annuity may be incredibly expensive.
  • If you don’t account for inflation or a change in care fees within your annuity agreement, not all your care fees will be covered by the income. This depends on the provider, the increase in rates, and whether your condition becomes worse over time. In that case, families actually need to make up the shortfall.
  • You cannot cancel immediate needs annuities as they are a lifetime agreement between you and the insurance company.
  • This means that if you no longer need care home costs support, or if you become eligible for NHS Continuing Healthcare funding or Attendance Allowance, any income you get may be paid to you instead of a nursing home or care provider. However, you will then need to pay income tax on this amount.
  • Because you cannot cancel the plan, you may receive less money in income than you originally put in with your one off lump sum.
  • A life annuity contract can take a long time to complete. This is because immediate needs annuities are underwritten and the insurance provider needs time to gather information about your health records from your GP.
  • Immediate needs annuities may impact your entitlement to means-tested state benefits, your tax position, and your state pension credit. Contact a financial adviser for tax advice and individual guidance.

Before agreeing to any terms or making a payment, speak to an independent professional adviser.

More information related to paying for care

Paying For Care

If you feel that you need extra support around the house, or that you need to move into a residential care home,  then you may be worried about how you are going to pay for care. Unfortunately, social care is not cheap. While the exact cost of your care will depend on your personal care needs, care fees can easily run in excess of £100,000.

Care Home Costs

Most people are responsible for paying for the full cost of their social care. You will be considered responsible for paying for care home fees if the valuation of your personal assets exceeds the national threshold. The savings threshold is different in England and Northern Ireland than it is in Wales or Scotland. Therefore, the are costs can also differ.

Home Care Costs

If you are thinking about receiving care and support at home, then you may be worried about how much your home care is going to cost. While it is true that the cost of home care is generally far less than the cost of residential care, home care can still amount to a considerable sum. Indeed, it is very common for the cost of in home care to run in excess of £13,000 per year.

Avoiding Care Home Fees

It may come as surprising news to learn that many people are responsible for paying their full care home costs. A person is responsible for funding their own care if the valuation of their personal assets exceeds the national threshold. 

Immediate Needs Care Annuity

An immediate care annuity is an option that can give you peace of mind. Essentially, it is an insurance policy that covers your care fees for the rest of your life by providing you with a guaranteed lifetime income. 

CHC Funding

NHS CHC stands for NHS continuing healthcare, with continuing meaning long term life care. Health and social care can be expensive, especially if you have no savings, income, or other finances. 

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