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Using an Annuity to Pay for Long Term Care

Stan Haithcock
May 15, 2023
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Are you looking for an answer regarding annuities in long-term care? Many people have that on their mind because long-term care is kind of that gorilla in the room, that little guy on your shoulder that's like, "You might want to address that. You might want to check that box." I'm assuming that's what you're looking at: "Can I solve this with annuities?" Well, yes, you can, but I want to go deeper into that answer, show you some examples, and tell you about the products on how to do that or how to use an annuity to pay for long-term care, which is also an idea. Hang in there with me, and we'll get to it.

Indexed Annuities

Okay, so using annuities to pay for long-term care. Now, most agents will say, "Hey, I've got this great annuity that solves long-term care, and it's guaranteed issue; you don't have to do anything." Maybe that's happened to you. The short answer is that the best coverage for long-term care is traditional long-term care, and I don't sell traditional long-term care. I'm America's annuity agent. I'm Stan The Annuity Man, licensed in all 50 states but don't sell long-term care. It's still a great product if you can find it, and it's affordable. I do use a person that I refer that business to that's a long-term care specialist. But when it comes to annuities and long-term care, a couple of products are out there. One of them is an Indexed Annuity or Variable Annuity with an Income Rider that has what's called a confinement care benefit rider on it. It's a guaranteed issue. What you see typically with those is that it doubles for if you can't do either two of the six daily functions or some of them, it's some other parameters you must hit for the income to increase. But in a perfect world, those products should be used as secondary coverage, not primary coverage.

Client Example

Here's what we'll look at today, which happened the other day. A gentleman called me and said, "I want to cover for long-term care, but I don't want to just take money out of my investments all the time. How do I do that? How do I take an annuity and pay for long-term care?" I'm going to tell you how we solved that problem for him. Okay, long-term care, the gorilla in the room, right? I know there's no perfect answer. Here's the other thing, too, and I just thought of it, if the government comes in with some universal care in the future, I don't know where long-term care coverage will go. Only so many companies are left out there that even do traditional long-term care. But let's say here's your long-term care, and I don't sell that, but I can refer someone very, very good, as brutally honest as Stan The Annuity Man, which is what you want. You don't want someone just selling you something. Let's just say the premiums on that, and I'm just going to grab a number just for math's sake; it's $200 a month that you must pay for long-term care coverage. Many people say, "I hate long-term care coverage like that because, Stan, what if I never use it and all that money's gone to waste?" I agree. I mean, that's an issue, but you do the same thing for homeowners, flood, and car insurance. It's the same thing. I don't think you should look at it any differently. Here's what we did for him. It was $200 a month, so I said, "Here's what we can do. We can take an Immediate Annuity and solve for that $200 monthly, so reverse engineer it." You can run an Immediate Annuity quote two different ways. You can say, "Hey, Stan. Here's the lump sum. What income stream is that going to produce?" By the way, it's based on your life expectancy at the time you take the payment, and the payment is a combination of return or principal plus interest. I ran it two ways for him and had him decide what he wanted to do. I said, "We can do it like this. We can say life only, and life only means it will pay you for the rest of your life, but when you die, money goes poof. You don't need long-term care when you die anyway, right?" Exactly.

We ran that quote for him, and it was $50,000, and it was going to pay $200 a month for the rest of his life regardless of how long he lived, and it was going to fund that long-term care policy. Then I ran it this way. I asked, " How long do you think you'll live?" Now, that's a loaded question, but the guy was opinionated. He goes, "I don't know, 10, 15 years." I said, "Okay. Let's run a 10-year certain annuity, so 10 years certain." What does that mean, Stan? That means that it will pay for 10 years, and after that, it's over. Okay? We solved it for $200 a month but slightly less. Long story short, the 10-year certain was less than life only. Why? Because it's for a specific period and the life only was forever. Now, he eventually decided on life only. He said, "I'd like to do the 10-year certain because it's less money, but what if I live to year 11 and need long-term care?" Good point. So, what he did was this, he did life only. He did it for solving for $200. What did he do? He took a turnkey approach to paying for long-term care as long as he was alive. The second he died; it was over. I thought that was a good way to do it. I guess the downside to that is when he needed the long-term care, let's say he paid into it. We discussed this, but there are no perfect solutions. He turns on long-term care at that time happens. The $200 a month will still come into his estate as long as he's alive. That's cool because there will still be a cost. But that's an interesting arbitrage way to use an annuity to pay for long-term care benefits you want to ensure you have.

Daily Functions of Life

Okay, now you understand how to solve the problem, but I want you to understand and think about this for your specific situation. These are just stats and are hard to come to terms with, but it is what it is. In the long-term care world, when you qualify for long-term care, you can't do two of the six daily functions of life. Those daily functions are stuff like feeding yourself and clothing yourself and bathing yourself and things like that. I know I think of that, and you're probably thinking the same thing: "Man, when that happens, life stinks, right?" I agree, but we have to think like that. You can't do two of the six daily functions. I want you to go there, and I know it's tough. You'll live an average of three years and a maximum of seven. That's what the stats say. When you can't feed yourself or clothe yourself or bathe yourself, hey, you're not going to live long, life stinks anyway, but from the standpoint of the coverage, the average is three years, the maximum is seven, and you might be out there going, "Not me. I'm going to probably live forever and be drooling on myself and whatever." I understand that, but I want to get your head around long-term care coverage is really for short-term coverage because it's a rapid decline once you qualify for long-term care. We're being morbid here but also talking honestly about the coverage. What I would tell you to do is consider that.

The other thing put in the back of your head, this might be a little bit crazy when I say it, but it's true, most people that have $3 million or more investible assets you're either out there going, "Stan, you're crazy. I don't have that," or, "I might have that." If you have that, you can self-insure, but even people with that type of investible assets like to transfer risk, and that's what you're doing when you're buying a long-term care policy. Those are some of the things I wanted to talk to you about, just the reality of long-term care and as you're going into planning. I would encourage you to book a call with us and let us put together the scenarios for you and show you the good, the bad, and the contractual guarantee so you can make an informed decision.

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.

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