Self Funding Care Guide – Immediate Needs Care Plan
Once the decision has been made to go into a care home and it has been established that you will need to self fund, there are various ways that you can use your existing capital to pay for the fees. One way is purchase an Immediate Needs Care Plan; this is a long term insurance product which aims to pay part of all of the costs of an individual’s care during their remaining lifetime in exchange for a lump sum payment. The plan will pay a regular, tax free income to your registered care provider, starting immediately on commencement of the plan.
The way the plan works is as follows:
- You pay a lump sum to an insurance provider – the lump sum required is calculated by the insurance company and is based on the income you require, your age, state of health at time you apply and if you require any additional benefits to be added such as escalation (whereby the income increases each year);
- The income you will receive will be agreed at the outset and will continue for the rest of your life;
- The insurance provider will pay the monthly income to our care home provider; this income will be tax free;
- If, for any reason, you leave the care home and return home or move in with a family member, the income will then be paid directly to you but would lose its tax free status.However, if you were to move back into a care home at a later date the income would be converted to tax free again.
An Immediate Needs Care plan is ideal if you require the certainty of a regular income for the rest of your life and have a lump sum to achieve this objective. There are no investment risks and you can reduce inflation risk by opting for an escalating income option whereby the income will increase each year. You can usually increase the annuity by a fixed percentage (i.e. between 1% and 8% each year) or by the Retail Prices Index (RPI) which links the plan to the general UK rate of inflation and will increase your annual income accordingly.
If you were to die early there is the possibility that you might not get back the full value of your initial investment however some policies do offer an option to safeguard the capital in the event of early death. When you die, unless the policy offers a death benefit, there is no payout to your estate.
A Deferred Care Plan could also be an option – instead of paying out benefits immediately, the plan will pay out after a few months or years. This type of plan is usually cheaper than an Immediate Needs Care Plan.
If you die during the first six months of the plan, a percentage of the capital you invested will be returned to your estate / beneficiaries. The percentage returned depends on how far into the six month period death occurs.