Annuity purchase query for elderly mother's care expenses: Expert advice from STEVE WEBB
In a situation where an individual is considering buying an annuity to help cover their mother's care fees for the rest of her life, an Immediate Needs Annuity (INA) could be a worthwhile investment.
An INA provides a guaranteed income for life to cover care costs, offering peace of mind that care fees won’t exceed what the individual can pay, even if their mother lives longer than expected or care costs increase.
Key points to consider:
- Lifetime coverage: INAs provide a guaranteed income for life to cover care costs, which offers peace of mind that care fees won’t exceed what the individual can pay, even if their mother lives longer than expected or care costs increase.
- Health status: If the individual's mother has poor health or existing care needs, premiums may be lower because the insurer anticipates a shorter payment period, making the annuity potentially more cost-effective.
- No income tax on payments: Payments from an INA go directly to care providers and are not treated as taxable income, providing higher effective value than a normal annuity.
- Trade-offs: INAs typically are irreversible after a cooling-off period, provide no liquidity or flexibility, and do not benefit heirs beyond the annuity’s terms. They may not be ideal if the individual wants access to cash or only needs short-term care.
- Cost comparison: An immediate annuity can pay significant monthly income, for example, a £500,000 annuity might yield around £2,800 monthly for a 65-year-old. This roughly translates to coverage of substantial long-term care fees, which often exceed £100,000 per year in nursing homes.
- Alternatives or supplements: Other products like deferred annuities with long-term care riders might fit those who want to plan ahead for care starting later, but these usually don’t pay out immediately.
In summary, if the individual is about to start or already needs care and wants to ensure their mother's care costs are covered without risking running out of funds, an Immediate Needs Annuity is a valuable investment for securing those costs for life, especially when they have limited funds left but expect ongoing care needs. However, if their mother's care needs are likely short-term or they want flexibility/access to their money, they might reconsider this option.
Consulting a financial advisor with long-term care expertise is advisable for a tailored assessment. Key decision factors include the expected care duration, current health/age, desire for liquidity/flexibility, remaining funds and care costs, and eligibility for free care.
For someone self-funding care with roughly 6 years of funds remaining, and anticipating ongoing care costs beyond that, an immediate needs annuity generally is worth the investment to provide guaranteed care funding for life.
If the individual does not take action, their mother's money will run out in approximately six years, requiring someone else to cover the care fees of £40,000 (plus inflation). If the individual's mother's savings fall below £23,250 (England's capital limit), she may become eligible for local authority funding for care fees. The individual should be aware that buying an insurance policy may mop up virtually all of the mother's assets. There is additional public funding towards the fees of those who need nursing care, but the individual may want to discuss with their adviser the possibility of additional fees later in the mother's life.
- In the case of someone considering financial solutions for the long-term care of a loved one, investing in a financial product like an Immediate Needs Annuity (INA) could offer peace of mind for potential future costs.
- By choosing an INA, the individual can secure a guaranteed income for life to cover care costs, which is beneficial if their mother's care needs are ongoing or if they live longer than expected.
- However, it's essential to weigh the trade-offs, as an INA is generally irreversible, provides no liquidity or flexibility, and does not benefit heirs beyond the annuity’s terms.
- Seeking professional financial advice, particularly from an advisor with expertise in long-term care, can help in making a more informed decision on the INA, taking into account factors such as the expected care duration, remaining funds, and existing medical-conditions.
- To secure the care costs for life, especially when funds are limited but ongoing care is expected, an Immediate Needs Annuity investment could help take care of health-and-wellness expenses, ensuring peace of mind for both the individual and their loved ones.
- It's crucial to remember that delaying action on securing the best financial advice and products could lead to potential shortages in funds, putting additional burden on personal-finance, business, and health-and-wellness resources.
