Long Term Care Annuity
Long Term Care Annuities are at the forefront of the ever changing long term care field. As more and more people are planning their retirements. They are starting to see the missing leg in their Retirement Stool. Their guaranteed income is covered, their estate is as well, but what they are missing is the final leg. Long Term Care Insurance.
A lot of us have had to deal with parents or grandparents needing assisted living. And lets just say, those who had coverage, had a much more pleasant experienced, than those who did not. So as LTC demand continues to rise, companies are finding new ways to help people cover their needs. These innovative products also happen to also cover most of the shortcomings of conventional long term care insurance.
So what are these companies doing to fill this demand? Well they have introduced Both Long Term Care Annuities and Asset Based Long Term Care Insurance Products.
Why is this happening?
As we have mentioned in other articles and videos, there are numerous shortcomings to conventional long term care plans. Two of the main ones being:
- Non-Guaranteed Premiums
- No refunds, if the coverage is never used.
To Address these, companies have begun to create Asset Based Long Term Care Insurance which can be in form of both Whole Life Policies as well as Annuities.
Moving assets such as cash, CDs, savings, and existing annuities into long term care annuities can simultaneously grow your assets, while also providing the security of long term care insurance. With the average cost of care rising every year, now is the time to address these concerns.
With all asset based hybrid plans, you have the additional advantage of cash value and death benefits. Which guarantees you receive at least the amount you put in, if long term care is never needed of used.
This is unlike a traditional long term care plan, which can feel like your paying into a bottomless pit.
How Does A Long Term Care Annuity Work?
Most of us work hard our entire life with the goal of retiring comfortably and passing assets down to our heirs.
Most people mistakenly believe that the government or their health care will cover will take care of their stay. When the polar opposite is true, unless you are well below the poverty line. Even then recent 2020 budget proposals are pushing a gutting of medicare and medicare. So the future is uncertain and every person must self-insure while you can.
Okay, So how do I fund my Long Term Care Annuity?
Carriers have come out with different offerings and given us multiple options to fund them. We can use a:
- Single Premium Option
- Annual premium installments
- Tax-Qualified funds such as 403(b)s, 401ks, IRAs
- An existing annuity or the cash value in a life insurance policy that you might no longer need.
Depending on your personal financial situation and the allocation of existing assets, we can find a way to fund or transfer money into a growing pool of capital to protect you and your spouse from the rising cost of long term care.
What is an example of a long term care annuity?
For this example we will use One America Annuity Care II, which is a single premium long term care annuity.
Let’s assume you are a 60 year old female and you have $100,000 that you are not going to need for your future retirement needs.
By transferring these assets over into One America Annuity Care II you suddenly have a combination of a fixed annuity with long term care benefits for up to 72 months.
One America Annuity Care
Your long term care annuity benefits would look like this.
Cash Value COB Benefit LTC Benefit Monthly
Age 65 $102,108 $322,491 $429,988 $4,479
Age 70 $103,953 $345,644 $460,858 $4,800
Age 75 $105,502 $369,308 $492,410 $5,129
Age 80 $106,724 $393,299 $524,398 $5,462
Age 85 $107,588 $417,406 $556,541 $5,797
By using this concept you have the ability to turn $100,000 into a benefit of $400,000 to $550,000 or $4,400 to $5,800 per month for 8 years. In addition to leveraging this LTC benefit, it is all tax free.
If you never use the long term care benefits, you will always have the $100,000+cash value growth in principal back to leave to your family as a beneficiary.
Here is a link to an illustration that shows the benefits discussed above.
Are there any other riders or features I can add to this Long Term Care Annuity?
Yes, we can add a few different riders like inflation protection, as well as continuation of benefits rider.
1) For example lets, take the 5% compound inflation.
With this next example, I am using the same as above, 60 year female with a $100,000 deposit. The benefit period is but I have added the a 5% inflation feature.
Cash Value COB Balance LTC Monthly Balance
Age 65 $91,468 $326,380 $422,675
Age 70 $93,121 $416,553 $519,762
Age 75 $94,509 $531,640 $641,915
Age 80 $95,603 $678,522 $795,961
Age 85 $96,377 $865,985 $990,622
By adding the inflation protection of 5% you have potentially leverage your initial deposit of $100,000 by 8 to 10 times.
Here is the link to this example.
Are there any Tax Benefits or Advantages with a Long Term Care Annuity?
When the the Pension Protection Act of 2006 was passed, this allowed all withdrawals from non-qualified annuities being used for long term care expenses are to be tax free. The government is incentivizing you to cover your expenses, so you don’t have to deplete all your life savings to enter medicaid.
If you recall at the beginning I mentioned that you could also transfer money into a Long Term Care Annuity via a 1035X and the IRS also states that clients will experience no taxable income if they use this feature.
How Much Of A Factor Is My Current Health Affect Me Being Able To Get This?
A lot of our clients have had some health history or even been declined for traditional long term care or life insurance.
We still have to go thru the underwriting process but the guidelines are not as strict with a long term care annuity and we have had many be able to get this coverage that have been declined before.
My Thoughts On How to Fund This Product.
After being in this business for almost 33 years and working with 10,000 plus clients all over the country. Here are some of my thoughts.
I have had a lot of people purchase life insurance over the years to provide protection for their family or their business. As time goes by and we get older, there probably comes a time when that coverage or as much coverage might not be needed anymore. Instead of surrendering the contract to get any cash values, that might have a taxable gain and be money that you really don’t need to live on, then we can do a 1035X (exchange) to move the money into a long term care annuity and use that to leverage any future long term care needs while at the same time have the principal being guaranteed.
We also see clients that not only have qualified money but a lot of non-qualified in different accounts. Examples would be in CD’s (certificate of deposits), this money has already been taxed and each year you get a 1099 showing the interest earned and you report that as earning on your return. The money in the CD is not needed but merely sitting there parked at the bank. Let’s consider using a portion of the money to deposit into a long term care annuity. You leverage the benefit amount and no more 1099’s on that portion of the money.
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