Don’t Miss The Mark On Long-Term Care Annuities
So what is a long-term care annuity?
There are two types of long-term care annuities. The first type of long-term care gives coverage for you and your spouse or partner, including health insurance products that provide coverage.
Typically you’ll go through a question-type phone interview with the carrier, and they will apply a multiple to the amount of money you put into the account for long-term care coverage. Let me give you an example. Let's just say you put $100,000 in, and you go through the interview, and they say you're going to get a three-times multiple for long-term care, which means that you're going to get $300,000 worth of long-term care coverage. But you still control the $100,000.
Now for confinement care, you'd have to go into a home first. Then after a specific period, the annuity company will increase the income guarantee, or in some cases, double it. All they're doing is giving your money back quickly when you get sicker. Realistically, it's not a bad thing to look at because it's a guaranteed issue. You don't have to use it, but it's always there for you, and with a lot of these policies, you can set it up communal life with a spouse or partner.
Can you use an annuity to pay for long-term care?
You can. There are multiple ways to have an annuity pay for long-term care. With long-term care, there's a specific amount that you have to pay either monthly or annually. We often buy them single premium immediate annuities, a pension pension-type that pays a lifetime income stream.
What you should do is set up the single premium immediate annuity to pay, then reverse engineer it to solve for the exact amount of money needed to pay for that long-term care coverage. I suggest you buy a single premium immediate annuity solely to pay for long-term care.
Such things are called long-term care annuities that are more of a health product, not a life insurance product. There are guaranteed issue products, income riders that also have enhanced benefit payments or confinement care payments, so when you get sicker, you get your money back quicker. That’s the way to do it with an income rider for enhanced benefit payout or confinement care.
Can a long-term care policy be cashed in?
Some of them can, and some of them can't. A typical long-term care policy is like a fire insurance policy, a flood insurance policy, a car insurance policy. You're just putting money into paying a monthly premium or an annual premium. If you never use it, the money goes poof, which is why many people don't like traditional long-term care policies. I don't sell long-term care, but it's still the best coverage if you can qualify for it.
There are two types of long-term care annuities.
The long-term care annuities do have liquidity. So, the health insurance product, if you don't use the long-term care provision, you’ll still have the original investment that's getting a meager interest rate. So with fixed index annuities, an income rider that covers confinement care, and enhanced benefit type payouts for long-term care, you can access the money. However, with fixed indexed annuities and with income riders for these types of long-term care confinement care enhancement, there's typically a surrender charge time period.
Typically, index annuities and some five-year policies are for long-term care benefits, about seven to ten years in length. So if you cash out, you're going to incur a penalty. However, most of them allow you to take out 10% penalty-free on an annual basis. But understand, if you do take money out of a policy like that, it will disrupt and change those contractual guarantees.
Is a long-term care policy worth it?
Maybe. There are no perfect answers to annuity questions, just terrible sales pitches. In my opinion, if you have traditional long-term care that you bought a long time ago, please do not sell that policy. Do not allow an agent to tell you to sell the original long-term care policy you have and put it in an index annuity with an income rider.
Remember, annuities are the transfer of risk policies. Long-term care insurance is also a transfer of risk policy. In essence, you're transferring the risk to the annuity company and to the insurance company to pay if something happens to you. The worth depends on what your goals are. If you have a $3,000,000 or more investible network, you probably don't need long-term care because you can cover those expenses for yourself.
If you’re looking into long-term care costs and don’t qualify, I suggest transitioning to the annuity versions for long-term care or confinement care type coverage. So if you don't need long-term care or confinement care, you can always get your money back in full.
If you’re curious about the best retirement plan for your assets, book a call for the brutal annuity truths and no sales pitches, ever.