Long-Term Care Annuity Pros and Cons
Hey, Stan The Annuity Man, America's annuity agent here with you to talk about a subject that I know you're sitting there going, "Oh, I don't even want to talk about this," but I'm glad you did. I'm glad you clicked on this blog. Today, we will talk about long-term care annuity pros and cons.
The pro is that you will have the coverage as a transfer of risk that you can depend upon. Like any annuity plan, it's a transfer of risk contractual guarantee. The con would be that annuities aren't the perfect product, even though you will hear that they are. They're not the perfect product to solve for long-term care. That is actually traditional long-term care, which I don't sell, but that is the best coverage still when it comes to long-term care, so hang in there with me.
Okay, long-term care annuity pros and cons. Just to repeat, in my opinion, Stan The Annuity Man, America's annuity agent, licensed in all 50 states, even yours, traditional long-term care is still the best policy out there. I know many people are trying to sell you life insurance with long-term care coverage inside of it, but traditional long-term care is still the best coverage.
Now, many people can't qualify for that, and many don't want to just put monthly premium amounts into a long-term care policy that they don't know they'll ever use. It's like car insurance, fire insurance, flood insurance, or any type of insurance policies you might have. You might not use it, but that's not the reason you have it. You have it in case you need it, which is why you and I are talking about long-term care.
Let's go through, just in general, from a 30,000-foot view, some of the products out there for you from the annuity side, and we'll talk about the pros and cons. You can always contact me by booking a call with us, and we can put together a plan for you. So, let's go through some of the long-term care annuities.
Long-Term Care Annuities
We're talking about annuities solving for long-term care, and typically, to trigger long-term care is when you can't do two of the six daily functions of life, which are feed yourself, clothe yourself, bathe yourself, those type of things that me and you are saying, "Wow, that's not good." When that happens, it's not good, but that's what triggers some of the benefits for the annuity products. And, of course, annuity companies are not all the same, not all products are the same, and not all the products are uniform, but I'm going to give you a feel for it.
A lot of the stuff that's being sold out right now is attached to what's called an Income Rider, so it's an Income Rider attached to either a Variable Annuity or a Fixed Indexed Annuity. This is the bad chicken dinner seminar stuff where the guy or gal says, "Hey, you get this Income Rider, you get free long-term care, you get lifetime income stream." The long-term care part is wrong. It's called confinement care, and what they do with these riders is typically there's a percentage that it grows by for a specific period of time, and then there's an income stream amount that's based on your life expectancy at the time you take the payment. The older you are, the higher the payment, just like Social Security, but the Income Rider for long-term care, in this case, is confinement care. I know you're saying, "Stan, semantics. What are you talking about?"
Guaranteed Issue Product
There is a difference, but we're talking about coverage, so let's not get in the weeds here. So, let's just say your income stream is $5,000 a month. Many of the Income Riders out there offering this confinement care benefit double that for, say, five years to $10,000 a month. Now, before you start high-fiving yourself out there and going, "Hey man, that sounds fantastic," remember that with any income stream from an annuity, you're getting your money back with interest, so in essence, what they're saying to you is, "Because you qualify for this additional coverage because you're sick and not doing well, we're going to give you money back quicker. We're, in essence, going to shorten your projected life expectancy." That's how they look at it, okay, so this is a guaranteed issue product, no testing, nothing. It sounds good in the bad chicken dinner seminar. Is it perfect? No. In a perfect world where all the planets align themselves and the unicorns chase the butterflies, secondary coverage.
Now, there's also what's called a long-term care annuity, and that's what it's called. It's a healthcare product. This is a life insurance product. That's a healthcare product, so you'd need a health license to sell it, but in essence, what it does is, let's say you put in $100,000, you have to get on the phone with that carrier, whichever one you choose, there's a handful of them, and go through 20-question, question, and answer.
If you're really sick, they won't give it to you. Annuity companies like to ensure healthy people. But let's say they do approve it, and they're going to give you a multiple; let's say the x stands for multiple of that, so let's just say they give you a 2.5 times multiple. So, you'll get $250,000 of long-term care coverage, and that's fantastic, so you can take it from there. Still, if you don't need it, then you, in essence, have a crappy CD getting a low-interest rate that goes to your family, so you're not going to lose a penny, which is what drives a lot of people crazy about traditional long-term care, is you give them the money, you give them the money, you give them the money, and then you never use it.
A Story About My Father
I'll give you a story. My father passed away a few years ago, and they had paid into long-term care. When the premiums increased, they called me every year, "Hey, Stanley, should we still pay for the long-term care?" I'm like, "Yes, it's a transfer of risk, Mom and Dad. Come on." They're ex-basketball coaches, and they don't know anything. But I love them, and so they paid for it, but my father, when he got really sick at the end, they applied for it. I said, "You need to apply for it." By the time it was approved, he had passed, and my mom's like, "That was a rip-off." Of course, she said that, she's from the south, and I'm going, "No, it's not a rip-off. We'll keep it on you because there's a good chance that you might live a lot longer and need it."
So, it doesn't work out perfectly. It's like anything in life. You can look back at many of your financial decisions and say, "Man, I shouldn't have done that," but what you're doing, remember, long-term care is transferring the risk for that coverage, so it still works when it doesn't work. How about that? It's a peace-of-mind product, correct? Absolutely.
Lastly, I want to talk one-on-one with you about the realities of long-term care. And it's not a good topic for many people to discuss because you're talking about your demise, but just remember a few things. It's not an investment. It's a transfer of risk, and number two, when you qualify for this coverage, you're probably going to live an average of three years to a maximum of seven; that's what the stats say. I know that's horrific, and you're sitting there going, "Man, that's tough." Hey, but it is what it is.
With that being said, you should watch a video I made called, Do Rich People Buy Annuities? The answer is you'd be surprised that really, really wealthy people buy annuities. I had a client recently, and he literally had $50 million in the stock market, and he bought one of these confinement care riders, and I'm like, "I don't think you need it," but he wanted to transfer risk because he's a planner. He's a box-checker. You might be a box-checker, too.
Please visit my site, for more information, books, podcasts, and videos. In fact, subscribe to my YouTube channel because I do multiple videos throughout the week, Monday through Friday. We're always filming, but we're trying to educate the public on annuities, and what they do and what they don't do so you can make an informed decision. So with that, I hope to see you next time.
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.