What is an Immediate Needs Annuity?
When it comes to retirement many people spend a great deal of time considering how they would like to invest their retirement income. On the other hand, for some people who may have long term disabilities or be unable to look after themselves, this money may need to be spent elsewhere on care facilities which help to ensure that they can lead a good standard of life and are well looked after. In this situation they may consider purchasing an Immediate Needs Annuity.
How does an Immediate Needs Annuity work?
Once a person reaches a stage where they are no longer able to look after themselves then they could find themselves eligible for an Immediate Needs Annuity. This specific annuity works by giving an income directly to the care home, rather than to the individual. This income is designed to cover any care costs that the person might incur, ensuring that they are able to continue to afford this care for the rest of their lives. In addition, when this annuity income is paid directly to the care home it is currently paid tax free.
What are some benefits of using an Immediate Needs Annuity?
When it comes to taking out an Immediate Needs Annuity there are several benefits and these include:
- Any benefits which are paid directly towards a care home are generally tax free, so you will be receiving a higher level of annuity income
- Helps to cap the cost of care and prevent any shortfalls or care costs falling to relatives or friends
- The benefits are guaranteed to be paid for life and therefore you will always have a source of income to help pay your care home fees.
What are some disadvantages?
There are however, some disadvantages involved with taking out an Immediate Needs Annuity and these include:
- The annuity cannot be changed, so once you have set up an annuity in this way you can’t change it to another one further down the line
- The annuity is counted as an income and could therefore lower your existing benefits or make you ineligible to receive them
- The annuity amount may not cover escalating care costs and you may be left with a shortfall.