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One of the biggest challenges of funding for care is uncertainty around how long someone will live for and whether they go into a care home or require care in their own home. We also acknowledge that care fees can be very costly. So what does this mean in terms of risk?
If you underestimate how long someone will live, they could run out of money and be left without the care they want and need.
It’s impossible to know how long someone may live in a care home but there are statistics on life expectancy and average stays in a care home, which should be considered when putting a financial plan in place.
A BUPA study found that one in ten people admitted to a nursing home, with an average annual care home cost of £44,000, will still be alive after six years. This could mean a total cost of over £260,000, and this doesn't even take into account annual increases in care costs.
This creates uncertainty. It's difficult to predict how long someone might spend in a nursing home and the impact of a long stay can be financially devastating. An immediate needs annuity can provide a guaranteed monthly payment for life to help pay for your client's care fees.
In exchange for a single premium, an immediate needs annuity pays a monthly payment to the individual's UK registered care provider for the rest of their life. Fees are likely to increase with inflation over time and there are two ways to deal with this. Firstly, your client can choose for payments to increase by a fixed percentage or in line with RPI to help mitigate the impact of future price rises. Secondly, care increases could be paid for from other assets if available. Either way, the guaranteed lifetime payment will remove a lot of the financial uncertainty when someone is required to self-fund their care.
This website is designed to give professional financial advisers information and tools that they can use to help control and develop their business and should not be relied upon by private investors or any other persons.