A long term care annuity (LTCA) provides long term care protection for costs that are not covered by your health insurance policy. The benefits provided are based on the premium dollars you have paid into your annuity. The larger your premium, the greater your coverage for long term care.
There are two types of annuities with specific funding enhancements for long term care:
1) Pure long term care annuities: These are deferred annuities that earn interest at only 1% annually, however, they pay a two to one or three to one benefit for long term care when the insured can no perform two out of the six activities of daily living. Admittance to a nursing home is not required.
2) Fixed index annuities with income riders that allow for an increase of income in the event of a long term care need. Most of these annuities require admittance to a nursing home, however, there are several models will double income for up to five years in the event that two out of the six activities of daily living can no longer be performed.
Typically, your coverage level with an LTCA could be between two to three times your initial premium deposit. If you do need long term care, your expenses would be paid from the annuity’s accumulated value up to the maximum monthly amount that has been specified. These annuity payments would continue until the account value is depleted.
Differences Between Long Term Care Annuities and Insurance
With an LTCA, you generally make one payment and then it’s considered “fully funded.” With long term care insurance (LTCI), you would be required to make monthly or annual premiums for the rest of your life, whether or not you ever need to use your coverage. Depending on the terms of your LTCA, you may be able to access cash value from it during your lifetime, even if you never need long term care. This is usually not the case with an LTCI policy.
One of the biggest advantages of an LTCA is that it doesn’t require traditional underwriting like an LTCI does. If you have a pre-existing condition, it might preclude you from obtaining LTCI. An LTCA provides an alternative if you have been rejected for LTCI, because it does not require traditional underwriting.
If you would like to discuss how to work long term care into your retirement goals, contact IQ Wealth Management for a consultation.
Best Selling Author and Kiplinger Contributor, Steve Jurich
A Kiplinger contributor, Steve Jurich heads IQ Wealth Management in Scottsdale, Arizona, a registered investment advisor. He is a Certified Annuity Specialist and a Certified Income Specialist and the author of the Amazon best seller, Smart Is The New Rich. You can hear his daily radio program, Mastering Money, broadcast on Money Radio in Phoenix (1510AM, 105.3FM) or choose from his podcasts
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