Long term care costs
The cost of long term care will depend on the health of the individual. Where the individual only needs companionship as well as help with the daily activities of life such as 22washing, feeding and dressing, this is provided by a residential care home. Where the individual suffers from a medical condition that requires the attention of a nurse, this is provided by a nursing home. An individual may be entitled to state benefits or NHS funding for long term care, even if they pay their own nursing home costs.

Residential care may cost an average from £13,400 to £16,400 depending on the location in the UK, whereas nursing care could cost an average from £16,700 to £24,400 depending on the location in the UK. This means that if the estate is large, a significant amount of its value could be used on long term care if the elderly relative lives considerably longer than expected and very little eventually left to the beneficiaries, such as children or grandchildren. The following is a breakdown of average costs in different parts of the UK.

The cost of long term care can be capped or limited to a know amount by using an immediate needs annuity. This would protect the estate from capital erosion in the event of the individual living significantly beyond their life expectancy.


Immediate needs policies
An immediate needs annuity policy can be purchased where an elderly relative is already in either residential care or a nursing care home or is about to be admitted. The annuity is paid directly to the care provider for the live of the individual and the Inland Revenue has agreed for this to be paid gross (no tax on the income). An alternative to an immediate needs annuity is a purchased life annuity where the income is paid to the individual and is partially taxed. This is more suitable for people that are in good health and living in their own homes and are looking for a higher guaranteed rate of return from their capital than bank interest to supplement their income.

The Inland Revenue have stated that the amount payable by the annuity can only be equal to or less than the actual charge made by the care home, there cannot be a surplus to the estate, should there be a reduction in the home care fees charged or in the unlikely event the individual returns to their home to look after themselves.

The usual method of purchase is a single lump sum payment in exchange for an income to cover all or part of the costs of long term care for the life of the individual. It is also possible to have different options depending on the circumstances and assets where the immediate needs annuity can be deferred.

Other features that can be added to the annuity are escalation rates and capital protection. Escalation attached to an annuity means the income paid to the care home rises by a fixed percentage each year and protects the income against inflation. Rates can be chosen between 1% and 5% of escalation. Capital protection allows the original capital to be protected in the event of the early death of the individual. The percentage of capital to be protected, up to usually 75%, would be returned to the estate less all income paid to the care home. This option would increase the cost capital cost of the immediate needs annuity.

annuity rates table
These rates tables are for purchased life annuitants. For other rates try;

standard single rates smoker single rates standard joint rates smoker joint rates diabetes annuity rates with profits annuity rates impaired life rates purchased life rates

The following immediate needs annuity table shows the capital required to provide an annual income of £12,000 for nursing and residential home care on a level basis for men and women.

It assumes the annuitant in the Nursing Home has suffered a major stroke and is dependant on all of the activities of daily living. This higher level of assistance can only be provided by a nusring home whereas the annuitant in the Residential Home is diagnosed with dementia and this lower level of assistance is dependant on only some of the activities of daily living.

Age Capital     Age Capital     Male 70 £51,783     Male 75 £48,668     Male 80 £43,583     Male 85 £37,095     Male 90 £30,755     Female 70 £68,266     Female 75 £64,233     Female 80 £54,478     Female 80 £48,684     Female 90 £39,145   Residential Home - Level Annuity   Age Capital     Age Capital     Male 70 £67,058     Male 75 £62,893     Male 80 £56,130     Male 85 £47,584     Male 90 £39,386     Female 65 £82,696     Female 70 £77,673     Female 75 £69,303     Female 80 £58,468     Female 90 £46,857   The above are examples of the rates available. Click the following for the extended immediate needs annuity tables.

Option 2 could cost the estate a maximum of 2 years nursing home fees (approximately £40,000 for 2 years) plus the annuity cost of £8,800, or a total £48,800. The difference between the two options is that for option 1 the medical prognosis is that the relative is likely to live beyond 2 years, so the family should pay £35,500 now. With option 2 the medical prognosis is that the relative is expected to live less than 18 months, so the family should pay £8,800 now and the nursing home fees every month. However, this is capped at the total cost of £48,800.


Medical conditions
Underwriters will use various approaches to underwrite an application for immediate needs cover and this includes their own experience of risks and possibly the Anderton Diagnosis Index. This index considers the medical condition suffered by the applicant as well as their ability to perform certain activities of daily living.

The medical conditions most commonly found in applicants is shown in the following table, however, any illness or disease that reduces the life expectancy of the individual would be considered by the underwriters. It is important to request a quote specific to you or an elderly relatives medical condition as rates can differ significantly due to the health and life expectancy of the individual.

Activities of daily living
There are a number of activities of daily living that would be considered by the providers. The more of these that the individual cannot perform independently, the higher the annuity rate in general, as follows: