Funding Long-Term Care: Immediate Needs Annuities and the UK's Limited Insurance Market

Long-term care represents one of the largest and most unpredictable financial risks facing individuals in later life. The cost of residential or nursing home care in the UK has risen materially over the past decade and now commonly exceeds £50,000–£80,000 per year in a private care home, with specialist nursing care or dementia care commanding significantly higher fees in many areas.

Despite this, the UK insurance market's capacity to help individuals pre-fund this risk through conventional insurance products has contracted dramatically. Understanding what remains available — and how it works — is essential for anyone engaged in later-life financial planning.

The Retreat of the UK LTC Insurance Market

Before approximately 2010, a small number of UK insurers offered pre-funded long-term care insurance: policies purchased in one's 50s or 60s that would pay a defined income benefit if the policyholder later required care. These products attempted to solve a genuine problem — insuring against an uncertain future liability whose timing, duration, and cost are all unknowable.

The commercial reality proved extremely challenging for insurers. Long-term care claims are open-ended in duration: a policyholder admitted to a care home at 82 might live another 10 or 15 years in receipt of benefit. Longevity improvements, care cost inflation running at above-RPI rates, and early mispricing relative to actual claims experience led to reserve strain for most UK providers of this class. By the mid-2010s, the major pre-funded LTC insurance providers — including Aviva, Legal & General, and others — had ceased offering new policies in this market.

Today, the pre-funded LTC market in the UK is essentially dormant for new business. Very few providers remain active.

What Is Available: The Immediate Needs Annuity

The principal product still available for care funding is the Immediate Needs Annuity (INA), also known as a care funding annuity or an immediate care plan. The INA is not a pre-funded product — it is purchased at the point when care need is already established.

An INA works as follows:

The purchaser (typically the individual needing care, or their family acting under power of attorney) pays a single lump sum premium to an insurer. In exchange, the insurer pays a guaranteed income — typically monthly — directly to the registered care provider for the remainder of the care recipient's life. The income continues regardless of how long the care recipient lives.

The critical tax advantage: if the INA payments are made directly to a registered care provider (rather than to the individual), the income is completely free of income tax. This treatment, confirmed under Section 725 of the Income Tax (Trading and Other Income) Act 2005, makes the INA significantly more efficient than drawing capital from savings or investments to fund care costs, where the investment income on the underlying capital would be subject to income tax.

How Pricing Works

The INA premium is calculated with reference to:

• The income level required (to meet current care fees, potentially with an indexation element for future fee increases)
• The care recipient's age and current health status — critically, a shorter life expectancy results in a lower premium, because the insurer's expected payout period is shorter. This is the inverse of a conventional annuity, where poor health attracts enhanced terms because the insurer expects to pay for less time.
• The level of any indexation applied to the income (a flat income unprotected against fee inflation becomes less adequate over time; an RPI-linked income is more expensive to purchase but preserves real purchasing power)

As a rough illustration for context: for an individual aged 82 with moderate nursing care needs requiring £60,000 per year in care fees, a purchase price in the range of £400,000–£700,000 might be required to fund a guaranteed income of that level, depending on the insurer's assessment of life expectancy and any indexation terms. These figures are highly variable and cannot be generalised — individual quotes must be obtained.

The market is served by a small number of specialist providers, primarily Just Group (formerly Partnership Assurance and Just Retirement, which merged in 2016). Getting independent specialist advice from an adviser with INA market access is essential — this is a highly illiquid, irrevocable commitment.

The Means-Testing Threshold

Whether an individual is required to self-fund care — and to what extent — depends on the means-testing framework operated by local authorities in England (Scotland, Wales, and Northern Ireland operate separately and with different thresholds).

Under current English rules, individuals with assets above £23,250 (including savings, investments, and in most circumstances the value of their home, if it is not occupied by a qualifying co-resident) are expected to self-fund their care costs in full. Individuals with assets below £14,250 qualify for full local authority funding. Between the two thresholds, a contribution towards care costs is expected on a sliding scale.

The family home is disregarded in the means test if the individual enters care and the home is occupied by:

• A spouse or civil partner
• A dependent child
• A sibling with a financial interest in the property who has lived there for at least one year before the individual entered care
• A qualifying carer (subject to specific conditions)

For many families, the home represents the primary asset against which care is being informally self-funded through sale. INA planning is most relevant where the individual retains liquid capital at or above the self-funding threshold.

The Proposed Care Cost Cap

Reform to the social care funding framework has been a recurring feature of UK policy debate for over a decade. The Dilnot Commission recommended a lifetime cap on individual care costs in 2011. Successive governments have proposed, delayed, and amended cap proposals.

Under the Health and Care Act 2022, a lifetime care cost cap of £86,000 was legislated to take effect from October 2025. However, in July 2024 the government cancelled these adult social care charging reforms before they came into force. At the time of writing (June 2026), there is no care cost cap in operation and none is currently planned, so individuals must continue to budget for potentially unlimited lifetime care costs. This makes the longevity protection offered by an INA — a guaranteed income for life regardless of how long care is needed — more relevant, not less.

Care funding reform remains a live area of policy debate, so the position should be reviewed with a specialist adviser before making any long-term commitment.

Equity Release as an Alternative Funding Route

Where the family home is a significant asset, equity release — specifically a lifetime mortgage — is frequently considered as a mechanism for accessing property wealth to fund care without requiring the immediate sale of the property.

Under a lifetime mortgage, the homeowner borrows against the property value with interest rolling up, repayable on death or entry into long-term care. Proceeds can be used to purchase an INA or to fund care directly.

The key risk of equity release is interest compounding: at compound rates of 4–6% per annum, a loan doubles in approximately 12–18 years, significantly eroding the residual estate. For families where the property is expected to form a significant inheritance, this erosion requires discussion with all relevant family members and careful independent advice.

Equity release is regulated by the FCA and providers must be members of the Equity Release Council, which requires a no-negative-equity guarantee — the homeowner (or estate) will never owe more than the property is worth.

Deferred Care Annuities

Some providers have historically offered deferred care annuities — purchased years before care need is anticipated (for example at age 60 or 65), with income commencing only when care is required. These products were conceptually attractive for pre-funding purposes but struggled commercially for the same reasons as fully pre-funded LTC insurance.

As of 2026, deferred care annuity availability in the UK is extremely limited. Individuals who wish to pre-fund care risk broadly have three practical options: accumulate a designated ring-fenced investment fund for care costs; arrange long-term savings alongside estate planning; or rely on the INA market when care is needed.

Planning Ahead: What Families Should Consider

The most important step families can take — often before care need arises — is ensuring that lasting powers of attorney (LPA) for both property and financial affairs, and health and welfare, are in place. Without an LPA, managing an incapacitated individual's assets to fund care requires a deputyship order from the Court of Protection, which is costly and slow.

With LPAs registered:

• Care home fees can be managed, redirected, and planned without court involvement
• An INA can be purchased by the attorney on behalf of the care recipient
• The tax-efficient direct-to-care-provider payment route is accessible

Reviewing protection plans and liquid asset availability as part of later-life financial planning — rather than reactively when care is needed — allows more structured and tax-efficient responses.

How Global Investments Can Help

Global Investments provides comprehensive financial planning services for HNW individuals and families, including later-life and intergenerational planning. We work with specialist long-term care advisers, equity release specialists, and INA providers to help families assess their exposure to care costs and the tools available to manage them.

For clients approaching or in later life, or families managing the care of an ageing relative, we can facilitate introductions to specialists in this complex and evolving area.

This guide is for general educational purposes only and does not constitute regulated financial advice. The long-term care insurance market, means-testing thresholds, care cost cap implementation, and tax treatment are subject to ongoing legislative and regulatory change. Always seek professional advice from qualified specialists before making any care funding decisions. Prices and care fee levels referenced are indicative only and based on information available as of 2026.