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 need long term care?”
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 a Long Term Care Annuity?
In the simplest of terms, an annuity is a financial contact with an insurance company. In exchange for a lump sum or premium, the insurer will pay you income that can last for a set period, or for the rest of your life. An annuity with a long term care rider can boost your income or even unlock extra funds should you need long term care. Generally, these annuities don’t pay out right away, and payments to you are deferred for at least one year.
How does an LTC annuity differ from traditional LTC insurance?
LTC annuities are attractive because premiums are predicable. With traditional LTC insurance, premiums can rise, as long as they increase for all insureds of the same class. With an LTC annuity, not only are you guaranteed a stream of income, but once LTC benefits are triggered, your monthly payout may be a multiple of your normal monthly income from the annuity. In addition, the annuity can be designed similar to a hybrid Life insurance policy, where any remaining value is passed along to your beneficiary.
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.
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.
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.
1Genworth 2024 Cost of Care Survey: www.genworth.com/aging-and-you/finances/cost-of-care.html.
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