An annuity with a long-term-care benefit can reposition money sitting idle. Some products may provide a long-term-care benefit pool equal to approximately two to three times the premium, depending on the purchaser's age, health, state, benefit selections and contract terms. If care is never needed, any remaining value passes to your beneficiaries under the contract's death benefit.
Long term care costs have climbed steeply nationwide. A few years of care can deplete a retirement account most people spent a lifetime building.
Most people assume Medicare covers long term care. It generally does not cover extended custodial care. Medicaid eligibility is means-tested, and income, asset and spousal-protection rules vary by state, so a qualified elder-law or benefits professional can advise on your situation. The people who are best protected are those who planned before they needed it.
A long term care annuity — sometimes called a hybrid or asset-based LTC annuity — combines a fixed annuity with a long term care benefit rider. The powerful part: Some products may provide a long-term-care benefit pool equal to approximately two to three times the premium, depending on the purchaser's age, health, state, benefit selections and contract terms.
For example, a $100,000 premium might make roughly $200,000 to $300,000 available for qualified long-term-care expenses. If care is never needed, the account value continues under the contract's terms and any remaining death benefit passes to beneficiaries.
Illustrative example only. Actual benefits vary by applicant and product.
Most people have money sitting in CDs, savings accounts, or money market funds doing nothing special — maybe it is an emergency fund they have not touched in years. That money already sits there for "just in case."
A LTC annuity can reposition that "just in case" money into a dedicated care benefit. You are not spending money on LTC coverage — you are repositioning money you already have. Benefit amounts depend on age, health, state, benefit selections and contract terms.
Typically $50,000 to $500,000 from savings, a CD, a 401(k) rollover, or any liquid asset. This is a single premium — no ongoing payments required. Ever.
Like any fixed annuity, your deposit earns interest tax-deferred over time. You still have access to your money — most contracts allow 10% per year in penalty-free withdrawals.
At issue, the carrier sets the long-term-care benefit pool. Some products may provide a long-term-care benefit pool equal to approximately two to three times the premium, depending on the purchaser's age, health, state, benefit selections and contract terms. On a $100,000 premium that might be roughly $200,000 to $300,000 available for qualified care expenses. This pool is separate from your account value. Illustrative example only.
When a licensed health care provider certifies that you cannot perform 2 of 6 Activities of Daily Living — or you have a cognitive impairment — the benefit activates. You receive monthly benefits to cover qualifying care expenses.
LTC claims first draw down your account value. Once it is exhausted, the insurance company pays from the additional LTC benefit pool. This is where the leverage comes from — the premium funds the account, and the insurer backs an additional benefit pool on top, as set by the contract. Illustrative example only.
If you pass away without ever filing a claim, your beneficiaries may receive the remaining contract value, subject to any withdrawals, charges and the contract's terms. The LTC benefit is not free. It is built into the contract through its charges and the interest you give up by leaving that money in the contract.
Here is what a $100,000 LTC annuity deposit looks like under two different life paths — and why it works out well either way.
If you need care: A benefit pool of roughly $300,000 could be available for qualified long-term-care expenses, which may cover a meaningful period of care without drawing on other retirement savings. Illustrative example only; actual benefits vary by applicant and product.
If you never need care: In this hypothetical, the account value could grow to $130,000 or more, and the remaining value could pass to your beneficiaries. How the death benefit is taxed depends on the contract and your beneficiaries' situation.
The LTC benefit is not free. It is funded through the economics of the contract. Product charges, credited interest, benefit multipliers, surrender provisions and opportunity cost should all be reviewed before you buy. Actual benefits, account values, eligibility and death benefits vary by product and contract.
Traditional long term care insurance has become increasingly difficult to find, harder to qualify for, and expensive to keep. Many policies have been discontinued entirely. Here is how the two approaches compare.
CD rollovers, savings accounts, or money market funds earning 4-5% that you are not actively spending. This is often the first place to look, since the money is not earmarked for spending. Repositioning it still has trade-offs, including surrender charges and the interest you could earn elsewhere.
If your retirement savings are the only thing standing between you and Medicaid, earmarking even $100,000 for LTC may help preserve the rest of your savings. Outcomes depend on your health, your state's rules and the product.
Asset-based long-term-care products may use different or simplified underwriting compared with traditional long-term-care insurance. Prior denial does not guarantee eligibility, and approval is not guaranteed.
If the idea of paying $3,000–$5,000 per year in LTC premiums for decades — and potentially losing it all — does not sit right with you, a one-time deposit solution makes much more sense.
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