What is a care annuity?
A care annuity (also known as an immediate or deferred needs annuity) is an insurance that exchanges a lump sum of money in exchange for a regular income that contributes to a person's long-term care home costs. The main benefit is that it gives certainty to the individual; whether they need care for 1 year or 30 years, they will be covered. The insurance can also protect against the mounting cost of care and mitigate against the impact of inflation, which is important now more than ever before.
Joel Brown, Business Development Manager at National Friendly says: "For someone who is looking at their parent going into a care home, they can decide between the risk of spending all of mum or dad's inheritance on care home fees or purchasing this product where they have got some control on future costs."
However, while the control the product offers is a benefit to clients, there are also risks. If a client requires care for a significant time, the product can prove to be excellent value. Conversely, if a client only lives for a short time after purchasing the policy it can represent a poor return on investment given the significant outlay.
Love says: "Often people are worried they're going to get it wrong, that they're going to lose all of their loved one's money through taking the wrong option by selecting an annuity. It is only natural. If I was faced with the same choice, I would be going through the same process."
However, some steps have been made to help mitigate the downside potential. For instance, customers can also purchase a capital protection option to protect a proportion of the money paid should they pass away earlier than expected. Some providers have also included a Covid guarantee, so if the death occurs within the first year after purchase, and Covid appears on the death certificate, the fees for the annuity minus the care home cost will be passed on to the beneficiaries.
