Deferred Care Annuity – what is it?
What is it? How does it apply to you? What are the details?
The notion of paying for your care in later life is something that causes a lot of people a fair amount of distress. Well Signature has written a number of posts recently with some friendly advice on how to lessen that particular weight. We’ve looked at Retirement Living and given out top tips but here we’re looking at Care Annuity.
What is it?
In basic terms, a care annuity is largely similar to insurance just with a specific aim at older people, their assets and the level of care they may need in later life. Instead of a general life insurance plan, care annuity is solely for your care fees, whether they are for a care home, full or part time home care or anything in between. You would gain care annuity the same way you’d get a life insurance policy by registering, disclosing certain details and then claiming this once your need for care kicks in.
What sort of details?
Well, for immediate needs annuity, the provider (the UK government, that is) will require your age, state of health, level of care currently having, level required and basic information on your personal capital to see what level of funds you are entitled to have.
What is the process?
Once this “application” (for the want of a better word) is completed, the care fees that you are entitled to will kick in and be paid directly to the care home or provider that is administering your care. There is typically a lump sum paid by you up front and then your yearly sum to which you are eligible gets paid out to the provider of your care. Therein lies the great benefit; the longer someone remains in care then the more return on your money in the form of care you receive, meaning that you can take this step and largely never have to worry about sorting out your care or fees again.
Advantages of care annuity
The immediate needs annuity and deferred needs annuity are, currently, the only plans that guarantee to pay a lifetime income to help pay for care fees. That’s a huge advantage. In addition, the annual fee increases with things like inflation in case care home fees go up or if you move care homes or care providers. The annuity can be switched from paying for one provider to another reasonably easily. The process is also protected by the Financial Services Compensation Scheme, given you a safety net and government backing in case of issues. In addition, if you have a large or reasonably sized estate to pass along then the immediate care annuity is deductible from your estate’s future value so you don’t need to have the lump cash sum to begin with.
Disadvantages of care annuity
Nothing is simple of course and there are disadvantages to the immediate and deferred care annuity. For instance the process can be time consuming as it is, in essence, an insurance and needs to be underwritten, go through insurers, information needs to be gathered. It can take a while to get completed. The upfront payment is also a downside. Often this is a significant fee which can be difficult to swallow for many. Lastly, there is a 30-day opt out period for you to change your mind, and this needs to be borne in mind.
What’s the biggest thing to takeaway?
If possible, a deferred care annuity is generally more flexible than an immediate one. Of course, the downside of this is that circumstances of people change all the time. However it’s generally good advice to plan for the future rather than react to the present. By going down the deferred side a few years in advance you would greatly reduce the upfront cost.
Hopefully there’s not too much jargon in that explanation. In simple terms, Immediate and Deferred Care Annuity is a way of insuring yourself (literally and figuratively) against needing care in later life with the aim of providing not only care but peace of mind to those in need of care without worrying about how to pay for it in the long-term.
Take a look at Signature’s Advice and Support page for more details on financial options.