Immediate Needs Annuities: Are They Right For You?

The prospect of paying for care can be daunting for individuals and family members, especially with rising costs in other areas of life. One option that could be used to fund long-term care is an immediate needs annuity, which provides you with a guaranteed lifetime income to put towards your care costs.

In this article, we explore how immediate needs annuities work, how much they cost and how you can buy one.

What is an immediate needs annuity?

An immediate needs annuity, also known as an immediate care annuity, is an insurance policy that can be purchased in exchange for a regular income. A lump sum is invested and in return, monthly payments are made to a care provider of your choice. The payments are guaranteed for life and even have tax advantages.

How do immediate needs annuities work?

An immediate needs annuity is a type of annuity that can be used to pay for some or all of your care costs. The lump sum can be taken from your pension pot or savings, and in return, you will get regular monthly payments towards the cost of your care.

The payments will go straight to your care provider and will continue for life, or for the duration of time that you are in receipt of care. If the payments are made to a UK registered care provider, they are not subject to income tax so you could get higher payments in comparison to a standard annuity.

Regular care payments can be extremely costly, and there’s a risk that you could run out of money and be forced to move from your preferred provider. But an immediate needs annuity ensures you won’t have to find extra money for long-term care costs – and you’re less likely to run out.

Who are immediate needs annuities for?

Immediate needs annuities may be suitable for the elderly or those in need of immediate long term care. This includes:

  • Residents in care homes, or those moving into one
  • People receiving care at home
  • Those who can afford to pay a lump sum
  • People who need a regular income to pay for care costs

What are the pros and cons of an immediate needs annuity?


Not only do immediate care annuities provide peace of mind that care costs will be covered for life, the payments are free from tax if they go to a UK registered care provider.

You can choose who receives the payments or transfer them to a different care provider, giving you greater control. With an immediate needs annuity, you can ‘ring fence’ your remaining assets, which means they are financially separate and protected.


Buying an immediate needs annuity is a big decision because it’s often irreversible. You are usually given a 30 day cooling off period and once this is over, you can’t refund or cancel it. Some providers will agree to paying you the remaining amount but it will be subject to tax.

If you pass away earlier, you could lose the lump sum or get less back than you invested. Another factor to consider is, you may be entitled to state benefits and if you’re in receipt of annuity payments, this could be affected. With the rising cost of care, the payments you receive may not be enough to cover costs and you will have to fund the remainder.

How much could I get with an immediate needs annuity?

The cost of your plan depends on how much income you need and how long you need it for. Your annuity provider will assess you based on:

  • Age
  • Health
  • Life expectancy
  • The income you need
  • Annuity rates

Each provider will have their own way of calculating rates but if you’re in poor health and your life expectancy is shorter, the plan is usually cheaper. For example, if your annuity provider offers you a rate of 30%, and you pay a lump sum of £150,000, it means you will receive £45,000 annually to pay for your care.

This is significantly higher than income amounts for standard annuities, where applicants are generally in good health and life expectancy is longer.

What happens to an immediate needs annuity when you die?

When the recipient passes away, payments from an immediate needs annuity will usually stop, unless there is an agreement in place with the provider. Some annuity providers will give you the option to choose a beneficiary, who will receive a lump sum if you die within a specific time period. This is known as capital protection and can safeguard up to 75% of your money in the event of early death.

How do I buy an immediate needs annuity?

An immediate needs annuity can be purchased through a provider or financial expert who can help you understand the advantages and risks associated with purchase. You may be subject to a questionnaire or health assessment from the provider to evaluate the state of your health or life expectancy.

As with any big decision regarding your pension, it’s recommended to speak to an advisor first. They will be able to help you explore all of your options and recommend the most suitable deal, comparing multiple providers and products.

Your annuity rate will be calculated by your provider and your plan can be tailored around your needs. It’s important to discuss any extras, like capital protection, that you can add to your plan.

Immediate needs annuity advice

An immediate needs annuity is a great choice for those in need of long term care. But it’s important to weigh up your options before you purchase one.

A financial advisor can help you determine whether this type of annuity is right for you and find the best deal. If you are considering purchasing an annuity or need more information, a good place to start is speaking to a pension advisor at Almond Financial.