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. We're going to talk about long-term care annuity pros and cons. We're going to get into that. The short answer to you, the pro, is that you will have that coverage. It's a transfer of risk that you can depend upon. Just like any annuity-type plan, it's a transfer-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 traditional long-term care, which I don't sell, but that is still the best coverage when it comes to long-term care. So, hang in there with me as we discuss long-term care annuity pros and cons and the different types out there.
To repeat my opinion, Stan The Annuity Man. America's annuity agent, license 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 the reuse. It's kind of 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 to use it, which is why you and I are talking about long-term care.
Types of Products
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. We'll talk about the pros and cons. You can always book a call with me, and we can put together a plan for you. So, let's go through some of the long-term care annuities.
We're talking about annuity 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 is 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 is 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, and not all the 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. 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 a 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, right? Just like Social Security, but the Income Rider for long-term care, in this case, it's confinement care. I know you're saying, "Stan, semantics. What are you talking about?" There is a difference, but we're talking about coverage. So, let's not get in the weeds here.
Let's say your income stream is $5,000 a month. Many of the Income Riders out there that offer this confinement care benefit, they'll double that for, say, five years to $10,000 a month. Now, before you start high fiving yourself and going, "Hey, man, that sounds fantastic." Remember that with any type of 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 the way to look at it. Okay? So, this is a guaranteed-issue product, no testing, no nothing. It sounds good in a bad chicken dinner seminar. Is it perfect? No. In a perfect world where all the planets align themselves and the unicorns chase the butterflies, it's secondary coverage.
Long-Term Care Annuity
Now, there's also what's called a long-term care annuity, and that's what it's called. It's a healthcare product. Income Riders is a life insurance product; long-term care annuities are a healthcare product, so you 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 but you go through the 20 questions and answer them. If you're really sick, they're not going to give it to you. Annuity companies like to ensure healthy people, but let's say they do approve it. They're going to provide you with a multiple.
Let's say they give you a 2.5-times multiple. So, you're going to get $250,000 of long-term care coverage, and that's fantastic. You can take it from there, but 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, etc. 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 money, and then you never use it.
I'll give you a story. My father passed away a few years ago, and they had paid into long-term care, and they called me every year when the premiums went up and went, "Hey, Stan, 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. 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 ripoff!" Of course, she said that she's from the south. And I would go, "No, it's not a ripoff. 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. I mean, you can look back at a lot of your financial decisions and say, "Man, I shouldn't have done that." But what you're doing, remember long-term care is you're transferring the risk for that coverage. It still works when it doesn't work. How about that? It's a peace-of-mind product, correct? Absolutely.
Last thing, I want to talk, me and you just talking one-on-one about the realities of long-term care. 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 in 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 one of the videos I did: Do Rich People Buy Annuities? You'd be surprised that really, really wealthy people buy annuities. I recently had a client who had $50 million in the stock market, and he bought one of these confinement care riders. I'm like, "I don't think you need it." But he wanted to transfer risk because he's a planner and box-checker. You might be a box-checker, too.
I encourage you to visit my site, if you want to listen to my podcasts, watch my videos, or if you just want more information on annuities. You can even download all 6 of my annuity owner's manuals for free! On a side note, subscribe to my YouTube channel because I do multiple videos weekly. We're always filming, but we're trying to educate the public on annuities and what they do and 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.