More options for paying care fees

Insurers are offering more flexible terms on plans that will cover the cost of care in later life – including money-back guarantees.

Providers of immediate needs annuities – which guarantee to pay care home costs for life, in exchange for a lump sum – will now pay back part of the upfront lump sum if the annuitant dies in the first six months of going into a care home.

“One of the biggest barriers for many families to buying an immediate needs annuity is the worry that their parent may die fairly quickly and the lump sum will not be returned to the estate,” says Brian Fisher of Axa, a long-term care provider.

“Often, a family home may have to be sold to buy an annuity – so these are big decisions. These guarantees for the first six months overcome these barriers.”

Axa and Partnership are two long-term care providers that have introduced short-term money-back guarantees to their annuity range.

Partnership is offering a six-month money-back guarantee, where the lump sum returned ranges from 100 per cent to 25 per cent if the annuitant dies within that period (see box below). There is no additional charge for providing this guarantee, which is offered on its standard annuity range.

Axa customers can protect their capital over a three-month or six-month period for an additional cost.

More flexibility has also been introduced for those relying on the sale of a family home to fund an immediate needs annuity.

Partnership’s Care Plan Option allows for the purchase of an immediate needs annuity in exchange for a charge that is made by the provider against the annuitant’s property. Interest is charged until the sale is completed, but there is no need to sell a property in a hurry, to pay for care fees.

“This overcomes a lot of the difficulties for those who are having trouble selling their home to fund an annuity,” says Chris Horlick of Partnership. “It is another option to increase flexibility for self funders.”

Buying an immediate care annuity can be a more efficient way of funding fees because the income is paid directly to the care provider, and therefore not taxed. Income from conventional annuities, which is paid to the annuitant, is subject to tax.

Immediate care annuities also give care home residents and their families the certainty that the care costs, which can range from £25,000-£40,000 a year, will be paid for life.

However, while welcoming the extra choice that these products now offer self-funders, financial advisers say there are some drawbacks.

“The main disadvantage with this [the charge on property] is that interest is added to the borrowed amount and will accrue over time,” says Alex Edmans of Saga Personal Finance.

“At present, interest on this plan is 6.99 per cent so in a little over 10 years, the debt will double.”

The other risk is that if the annuitant dies, the charge will remain on the property even though the income payments would have stopped – and the estate will continue to accrue interest until the debt is cleared.

“It is essential that those considering this option fully understand the possible risks involved before entering into any agreement,” added Edmans.