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Immediate response

Partnership managing director of care Chris Horlick explains how buying an immediate needs annuity ensured property assets were not depleted

Horlick: As with other types of annuities, a capital sum is invested in exchange for a monthly
Horlick: As with other types of annuities, a capital sum is invested in exchange for a monthly income that continues for as long as a person lives

How to fund long-term care is a question that many families come to face. Those who have to fund their own care can rapidly use up their entire savings. Luckily for John and his mother Susan, they ended up speaking to an IFA who helped them make suitable arrangements to pay for the costs of care.

Having lived alone for two years after the death of her husband, in July 2009, Susan moved into a care home at the age of 83. She had started to call her son more and more frequently to ask him simple questions about daily life such as where was the light switch in her living room. This worried both mother and son and together they agreed that it would be better for her to move into a care home.

John started to look into suitable accommodation for his mother. His priority was to make sure she had the best quality care they could afford. As with many people in his situation, the issue of how to choose and fund a stay in a care home was not something he had ever considered before.

John first contacted his local council to ask about how care is funded. They told him that his mother did not qualify for financial support from the council as she had assets worth over £23,000. The council would only fund the first 12 weeks. It was her responsi-bility to fund herself in the long term. After visiting a number of care homes in the area, John managed to find his mother a place in a suitable home close to where he and his family live. As the council were funding the initial stay, Susan moved in while the finances were still being worked out.

The council told him that many people in his mother’s situation sell their home and use the proceeds to cover the cost of care. They managed to quickly sell Susan’s home, leaving them with enough capital to pay for care home fees for the time being.

However, Susan was very unhappy with the idea that the entire value of the house could end up being used to pay for her care. She had built up valuable assets so that she could leave an inheritance to her children and grandchildren and if the whole sum was to be spent on care, then her family would have nothing to inherit. Also, if the money ran out, there was a chance that the council – who would then foot the bill – would move her into a cheaper home.

John decided it was time to seek financial advice on the issue. An internet search led him to a local IFA who was qualified to give advice on longterm care.

The IFA advised him that an immediate needs annuity would be the best way to fund his mother’s care.

The IFA explained that an INA is a type of annuity that is used to pay for care home stays in later life. As with other types of annuities, a capital sum is invested in exchange for a monthly income that continues for as long as a person lives. By investing a fixed amount, Susan would have a regular income that would pay for her care home fees but also preserve an inheritance for her family.

The plan can be tailored to suit the individual. Susan and John decided to purchase an annuity for £80,000 which pays out £1,600 each month, with a 5 per cent annual escalation to cover the risk of an increase in the fees. Some plans can also protect a percentage of the initial investment made.

With the care home fees at £2,200 each month, the remainder is covered by other investments, along with state benefits. The result is that both John and Susan have peace of mind over the cost of funding and Susan has the satisfaction of knowing that an inheritance has been secured for her family.

Without seeking advice from a qualified IFA and purchasing an immediate needs annuity, Susan could have ended up depleting the assets she had built up over a lifetime on care costs and falling back on the state with all the associated difficulties and trauma.


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. Is the 12 week initial care cover universal or does it depend on each local authority

  2. Provided other assets, excluding property, fall below the upper capital limit of £23,000, local authorities will pay care home fees for up to 12 weeks to allow time to sell the property.

    If the property still isn’t sold after 12 weeks, the local authority may move to a Deferred Payments Agreement where they offer to ‘lend’ the money to pay for care, recovering it when the property is eventually sold, or the person in care dies.

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