Long-term care insurance in the UK

What happened to pre-funded care insurance

Policies you could buy in your fifties to cover care costs decades later were sold in the UK in the past, but insurers withdrew from that market. The reasons are not mysterious: nobody could price a risk sitting thirty or forty years out, with unknown longevity, unknown care costs and unknown government policy. Premiums that were high enough to be safe were too high to sell.

So if you are looking for a policy to protect against care costs at some unspecified future point, you will struggle to find one. It is better to know that than to keep looking.

Immediate needs annuities

What does exist, and what most of this discussion is really about, is the immediate needs annuity. Sometimes called a care fee payment plan.

You buy it at the point care is needed, not in advance. You pay a lump sum and the insurer pays a guaranteed income towards care costs for the rest of the person's life, however long that turns out to be. It is medically underwritten, and unusually, worse health means a lower price, because the insurer expects to pay for less time.

The case for one

• It removes the risk of running out. The payments continue for life regardless of how long care is needed. That is the whole product.
• It makes the rest of the estate certain. Once the annuity is bought, what remains is known and can be planned around.
• Paid to a registered care provider, the income is generally free of income tax, which compares favourably with drawing the same amount from investments.
• It ends the anxiety of watching capital deplete, which families consistently say was worse than the cost itself.

The case against

• You hand over a large lump sum. If the person dies soon afterwards, without protection built in, much of it is gone.
• Fees rise. Unless you buy escalation, and escalation costs more, the income will cover a shrinking share of the bill over time.
• It is irreversible. Circumstances change and you cannot unwind it.
• Self-funding may simply be cheaper, particularly where there is substantial capital or where life expectancy is genuinely short.

Capital protection can be added so that a proportion is returned on early death, and escalation can be added to keep pace with fee inflation. Both reduce the income you get for the same lump sum. Whether the trade is worth it depends entirely on the case.

How to think about the decision

The underlying question is who carries the longevity risk. Self-funding means you carry it: the money lasts as long as it lasts. An immediate needs annuity means the insurer carries it, and you pay them for that.

Which is right depends on how much capital there is relative to the annual shortfall, the medical position, whether there is a spouse still to provide for, and how much the family values certainty. There is no general answer, which is why this is one of the more clearly advice-shaped decisions in the whole care picture.

Other things sometimes confused with this

Equity release is a way of funding care from a property rather than an insurance product, and it carries its own significant consequences. We do not advise on equity release. If it is something you want to explore, we would refer you to a specialist.

Critical illness cover pays out on diagnosis of defined conditions during the policy term and is not care funding.

Life cover in trust does not fund care, but can replace what care costs consumed, for the benefit of the family.

None of these is a substitute for the others, and they are frequently muddled in the same conversation.

This page is general information about the rules and does not constitute advice.

Last reviewed: 17 September 2026. Next review: Annually.