Client story: How to pay for care – cash or care annuity?

Peter’s situation

Peter was in his early sixties and very anxious about securing long-term care for his elderly parents. His 85-year-old father Richard was living with dementia and had already been in a nursing home for three years. Although Richard’s care had been state funded so far, when Peter’s mother June also required care and moved out of their home, Peter knew they wouldn’t both be eligible for state benefits. 

He was under huge pressure to work out how to afford care for both of them. He’d already done some research and knew he’d need to sell their home in order to plug the gap. As Richard was the sole deed owner, Peter understood it would be his father’s care fees that needed to be covered - but these were also more expensive. 

Peter felt the enormous responsibility of making the right decision on how best to spend the proceeds of his parents’ house to secure care for their lifetime, and hopefully have some left for family inheritance. It was incredibly important to him his father remain in the nursing home where he was settled and that his mother could be there with him, but if Richard lived longer than expected, the money would quite rapidly disappear.

Peter had heard about care annuities but knew they were expensive and that he’d need help to explore whether this would be a sensible (and affordable) alternative. He contacted Justin to get some impartial advice on what to do. 

How Justin helped him

Justin began by doing a full review of Richard and June’s financial situation to confirm exactly what the annual income shortfall would be. Justin’s cash flow modelling showed that after pension contributions they would need to find around £920 a week. This meant a hefty annual shortfall of just under £50,000, not allowing for inflation or any increases in care fees. If they used the cash from the house, this could swallow up Richard and June’s estate quite quickly, and Richard would then be in danger of having to move to a state-funded home, which would be distressing for the whole family.

Justin also fully explained Peter’s other course of action, which would be to buy an immediate needs care annuity. This would mean using a chunk of the house proceeds to pay a large lump sum up front to an insurance company, who would then guarantee his father continuous care for as long as he needed it. Peter was keen to explore this as he could see it would give him peace of mind. Justin applied to a number of providers to establish the best deal, and then built the quotes into a cash flow forecast. By showing Peter the two different funding scenarios side by side (using cash from the house or buying an annuity) it helped him to fully understand – in pictures – the impact each option would have on his parents’ finances – and Richard’s future security.

What Peter decided to do

Peter was understandably concerned about spending a large proportion of his parent’s estate in one go, but with Justin’s help he could see it would be affordable. He felt hugely relieved and reassured that it would guarantee the right care for his parents, while protecting the rest of their money as future inheritance for their family. He chose to buy the care annuity knowing it would give him peace of mind and allow him to spend time with his parents in the years they had left, instead of worrying about their finances.

“I feel relieved to have found a solution that means my parents will always get the care they need.”

— Peter, Lymington, New Forest