How does Long Term Care Annuity Work?
Long Term Care
An annuity can provide interest–and peace of mind.
Many argue that traditional Long Term Care (LTC) insurance is the best way to help manage long term care costs. While traditional LTC insurance is still a widely-used approach, it’s not feasible for everyone. Fortunately, multiple alternatives have emerged in recent years.
An increasingly-popular alternative is an LTC Annuity. It’s yet another way to help fund long term care, and it addresses a real concern many people have with traditional LTC insurance: “What happens if I never use it?”
Long Term Care Insurance Provides Options
There are many ways to pay for care when you need it and where you’d like to receive it.
What is Long Term Care Annuity?
LTC Annuities generally require less underwriting than traditional LTC or Hybrid Life insurance policies, and can double or triple your annuity investment in the form of LTC benefits.
LTC Annuity structures vary among carriers, but here are the two most common:
A Deferred Annuity: A guaranteed issue annuity with a long term care rider that can be tapped if you need care. Like traditional LTC insurance, benefits can help pay for a nursing facility, assisted living, adult day care, home health care, and other care expenses.
Simplified Issue Annuity: Based on the answers provided in a phone interview, a multiple for LTC coverage is applied. For example, if you invest $100,000 and the carrier applies a three-times multiple for LTC benefits, you’ll receive interest on your $100,00 investment with a potential $300,000 LTC benefit.
Most carriers offer inflation riders beyond the expected interest rate return, so even if you’re earning less in a low interest rate environment, your LTC benefit pool can continue to keep pace with increasing costs.
Single and jointly-owned policies are available. Joint policies only require a single investment, and they pool funds, which can be very helpful when only one spouse needs care.
LTC Annuities come with tax advantages. They can be funded by non-taxable 1035 exchanges and, like traditional LTC insurance, benefits paid for qualified long term care expenses are then tax-free.
So, what are the downsides? The cost of an LTC rider will reduce your net annuity earnings, but for those who can’t quality for traditional LTC insurance (or those concerned about paying for coverage they may never use) it’s a great option. Most LTC Annuities require a lump-sum deposit or several large initial payments, so you’ll also need sufficient liquid cash reserves to fund the premium.
LTC Annuities provide the benefits of a regular annuity payment and the peace of mind that comes with knowing the long-term care rider is there–if and when you need it.
To learn more about options for funding long term care expenses, connect with an Advisor, free of charge, at your convenience.
1 Genworth 2021 Cost of Care Survey: https://www.genworth.com/aging-and-you/finances/cost-of-care.html.
