Whilst there are other alternatives to selling a home to pay for care, one option that could be considered as an alternative is an immediate needs annuity, which is designed to help fund care for those who may need it should they become incapable of independent living.

The annuity works by the person involved paying a single lump sum and then receiving a guaranteed income for life, so ensuring funding for their care needs. Each plan is individually underwritten and the payments received are free of tax as long as they are paid to a recognised care provider.

The amount of premium needed for an immediate need annuity depends upon the age, sex and health of the patient and it will be cheaper if the person is in poor health and their life expectancy is therefore relatively short. Care homes are usually happy to attract residents with annuities with some also happy to agree to cap future rises in fees.

An immediate needs annuity costing £100,000 can provide an income of over £25,000 a year to an 85-year-old man with a poor memory and balance who requires help with most activities. The same amount will provide almost £19,000 to a woman of the same age with the same ailments. The Society of Later Life Advisers, an association of not-for-profit independent financial advisers who specialise in the financial needs of the elderly, provide more details on which providers offer immediate needs annuities.

The advantages of the annuities are firstly in providing security to that person, that they will be able to stay in the care home of their choice and will not have the upheaval of being forced to move homes because they cannot afford the current home they are living in. It will also prevent family members having to constantly top up any shortfall in care fees, they should all be taken care of by the annuity. Benefits are guaranteed to be paid for life, they are paid directly to the care home and are tax fee. They are most commonly seen as beneficial in providing much needed peace of mind, so that when difficult matters such as moving from independent living into residential care are concerned, there is some financial security that the care can continue indefinitely and the inheritance can be safeguarded.

There are however, some disadvantages to annuities. If a large lump sum, for example £100,000 is paid out and the person dies soon after they move into a care home the money is not repaid to the family, that £100,000 is lost although such an eventuality can be guarded against to some extent by taking some capital protection against it.

Also, there could, in some instances, potentially be a shortfall between the amount paid out by the annuity each month and the amount requested by the residential home. If the care fees increase by more than the amount that is usually factored in to any annuity, then savings will have to be used. Also, importantly, once committed to an annuity there is no opportunity to change your mind, though a further plan can be taken out at a later date.

Therefore, for all their benefits, there are some potential disadvantages with annuities, not least if the person dies soon after taking up the annuity. In some ways it is a rather unsightly gamble on the person concerned living for a certain period of time in order to make it a worthwhile expenditure.

Immediate care plans are also relevant to people choosing to stay in their own homes and can be portable so if the person starts off being cared for at home but then is moved into a care home the plan can move with them. Such plans are not able to be purchased directly and the Financial Services Authority and the companies providing the service require those interested to go through a suitably trained and qualified care fees specialist.