The financial prospect of paying for a loved one’s care can be daunting, particularly when you have no idea how long they will need it. It is important to explore all of the options available, and some are less well known than others. A Care Annuity, also known as Care Fee Annuity or Care Home Annuity might be a useful long-term solution.

An annuity is a kind of insurance policy where you pay a lump sum to get a lifetime income to pay for care. The lump sum will guarantee an income sufficient to cover your relative’s care costs for the rest of his or her life. This income is paid tax free directly to the care provider (usually on a monthly basis) so the administrative burden of paying the fees is also removed.

How much will a Care Annuity cost?

The price of a plan is based on how much income your relative might need, so the insurance company will assess how long they are likely to need it for. The cost will depend on certain personal factors:

• Their age
• Current annuity rates
• The level of income that might be needed
• Their life expectancy (the shorter it is, the cheaper it will be)
• Their level of health (the poorer their health, the cheaper it will be)

What are the advantages?

• Many people like the reassurance that care has been paid for fully, and for life
• Because the payment is capped, you will have a better idea of what funds you have left
• A lump sum payment could be much cheaper than paying for care on a monthly basis
• Most insurers guarantee a certain level of care, so you will be not be downgraded if a home closes down
• Most insurers guarantee a certain area in which the care must be provided, so your family member can remain nearby
• The money paid directly to the care provider is tax-free.

Are there any disadvantages?

• You cannot change your mind once you have paid the insurer, and get a refund
• If your loved one dies sooner than expected, you will not be reimbursed
• There may be additional parts of the care your relative needs, that are not covered by the plan
• If inflation or the cost of care increases, you may be asked to pay additional funds
• The income payments could affect your relative’s entitlement to some means-tested benefits
• It may not be feasible financially to pay up front in this way

While several specialist insurers on the market provide care home annuities, it would be best to take specialist advice since the rates and products offered between providers can be vastly different.