Annuity Examples: Enhanced Benefit Riders
Enhance the Annuity Wave
We're talking about enhanced benefit riders and some examples. Really what we are talking about is income riders that have some enhanced benefits attached to them. Not all income riders do. There are a lot of really bad sales pitches out there. I'm going to strip all that down and make it understandable so that you can make a good decision, about whether there are things you want to look into more. Also, maybe if you want some more coverage, from that standpoint of end-of-life-type care, which is kind of depressing to talk about. But we got to talk about it because it's reality, and we can do some things contractually, with annuities, that can solve for it and make that financial bite, sometimes, make it a little less because you have these contractual guarantees coming in.
Income riders are not an annuity. You can buy an income rider attached to a deferred annuity, or an indexed annuity, for future income needs. It's a pension. It's a lifetime income transfer of risk, a contractual guarantee that the annuity company's on the hook to pay.I've done a lot of income rider videos. I've written a book on income riders. But in part of that income rider book, we talk about enhanced benefit riders. All right, so when you buy an income rider, you're primarily buying it for the income guarantee in the future. Of these income riders, there are enhanced benefits for nursing home or in-home-type care.
Nursing Home and In-Home Care
So if you think from a categorization standpoint: Enhanced benefit up here, there are two types. There's a nursing home, and then there's in-home care. Now, depending on what you want, we can quote and show you those. At the time of this tape, and check the date, there are around 20 carriers that offer these types of enhanced benefits that are in addition to the income rider guarantee but that are attached inside of that income rider. The good news is that it's a guaranteed issue. So if you're smoking ten packs of Newports a day and drinking a bottle of scotch, bingo, you get it; you qualify for it.
Do not sell or get rid of your long-term care policy to buy one of these enhanced benefit riders.
That doesn't mean it's great. The best long-term care coverage or that type of coverage is traditional long-term care, and that's a health insurance product. But there are a lot of people that can't qualify for that. As you know, life insurance companies and insurance companies, in general, want to ensure healthy young people, not people like me who are slipping—slipping physically, as they say. Not mentally, of course. Physically.
So the confinement care coverage is the enhanced benefit coverage. Let's talk about the nursing home; I wish all the carriers were the same and uniform, but they're not. So in many cases, with the nursing home coverage, you have to be in a nursing home for a specific period of time. They're all different, but once you're in there for that specific period of time, then the income stream increases because, in essence, what you're doing is you're proving that your life expectancy is less, which means that your guaranteed payments will be fewer, which means that they will be higher.
The other is in-home/LTC, but it's in-home coverage. And to qualify for that is when you can't do two of the six daily functions of life. You're saying, "What's that?" The six daily functions of life are things like clothing yourself, bathing yourself, be able to walk. I mean, listen, if you can't do two of those six, life stinks. It does, and if you can't do two of the six, you’ll live an average of three years and a maximum of seven. But once again, once you prove that to the annuity company, they’re going to enhance that payout. They're going to increase that lifetime income stream because you've proven to them that your life expectancy is less, which means the payments will be fewer, which means the payments will be higher.
When you get an enhanced benefit part of that rider, and that's what you want, you’d see the nursing home or the in-home care. When you prove that, when you prove to the insurance company that you qualify, in essence, when you get sicker, you get your money back quicker. That's because of lifetime income with annuities, regardless of the lifetime income annuity type (Immediate Annuities, Deferred Income Annuities, Qualified Longevity Annuity Contracts, or income riders). In this case, income riders with enhanced benefits. You're getting your money back with interest, so you get your money back quickly when you get sicker.
Does that mean it's the best thing since sliced bread? No, but it's nice supplemental coverage. Notice I said supplemental, not primary. It's not primary coverage. It should never be primary coverage unless this is the only thing you can qualify for, and you're smoking the Newport and drinking the Jack Daniels. It's good secondary and supplemental coverage to ensure that when you are at that end-of-life stage, you will get a lot more income coming in.
All right, so let's get into the enhanced benefit weeds a little bit. When you qualify, and you're going to get your money back quickly when you get sicker, typically, that guaranteed enhanced payment amount is for five years. Now, why is it for five years? When you qualify, you typically live for an average of three years and a maximum of seven. So the annuity companies know that. "But what happens, Stan the Annuity Man, if I outlive that, and I'm tough as nails." Well, after the five years, you've doubled or enhanced, per specific contract. The lifetime income stream continues, returning to the original amount.
So, in other words, you've proven to them that if you're sicker, you get your money back quicker, but then you fought through it, like the warhorse and Trojan you are, the fighter. They’ll still pay you a lifetime income stream, regardless of how long you live. Annuity companies are on the hook to pay. Remember: with all these lifetime income products, including these enhanced benefit lifetime income riders, you’re transferring the risk to the annuity company to pay you for the rest of your life.
All right, what I'm getting ready to tell you is very important, and I've said it before, but I'm going to say it again. Do not sell or get rid of your long-term care policy to buy one of these enhanced benefit riders. And if an agent or advisor says, "Well, we'll just get you to sell that," they have no clue what they're talking about. Don't sell your long-term care policy, and don’t replace it with this enhanced benefit rider. You can use the enhanced benefit rider as supplemental coverage for the current long-term care policy.
Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.