Long Term Care Annuity Accounts

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A Hybrid Annuity For Long Term Care

Hybrid AnnuitiesHybrid annuity accounts are part long term care policy and part annuity. They provide leveraged payouts for long term care expenses like traditional LTCi policies, but also offer the advantages of a fixed annuity policy.

We offer hybrid long term care annuity accounts from several insurance carriers. We will help you compare and contrast these plans to see which policies might be a good fit for your long term health planning needs.

Most hybrid annuities are simply a combination of a fixed annuity and a traditional long term care policy. Your money grows at a declared interest rate each year, but should you need long term care, your accumulated value is leveraged 2-3 times over to help pay for LTC expenses. If care is never needed, the funds are available for withdraw or transfer.

Most often, hybrid policies are funded with a one-time single premium. In other cases, polices can be funded/purchased over a set number of years – say $10,000 a year for ten years. All things being equal, your long term care benefit pool will be larger when the policy is funded with a one-time lump sum deposit.

How Do Long Term Care Insurance Annuities Work?

Like traditional long term care policies, you are purchasing a pool of money that can be used to cover future long term care expenses. Quotes will help illustrate how much your LTC pool of money will be worth and the minimum number of years to will last.

Hybrid annuity policies from different carriers will work in different ways – one size does not fit all. In general, a hybrid annuity will state what your daily or monthly benefits will be each year for care in your home, assisted living facility, adult daycare, nursing home or hospice setting. If you are using less than your allowable LTC benefits, then your policy will last longer than the term applied for.

Most policies are designed to make leveraged LTC payments for 3-10 years. You decide which term might be best for you and then fund your hybrid annuity accordingly. In general, the shorter the number of years, the larger your daily (or monthly) benefits. And most carriers offer inflation riders that can help increase the LTC benefit pool – above and beyond the annuity’s normal interest growth.

If the policy is never used to pay for long term care expenses, then you can withdraw your premium and/or interest gains for your financial needs. At passing, the annuity proceeds (deposits and growth) will be passed to your named beneficiaries. The insurance company does not keep your money at death.

Inflation Protection – Can My Policy Grow Each Year?

Hybrid Annuity AccountsThere are two ways most hybrid annuity accounts will increase in value each year. The first is through normal interest (declared rate of return) and the second is through inflation protection.

Whether a hybrid or not, all fixed annuities will have a declared interest rate each year. When your annuity grows, so does your LTC benefit pool.

In most hybrid accounts, there is an internal cost for the LTC insurance. If overall interest rates are very low, then the cost of the LTC rider and the declared interest rate can cancel each other out in these years. In other words, your annuity policy would not grow much in a low interest rate environment, but your LTC benefit pool will never decrease in value.

To guarantee benefit growth, many LTC annuities will offer an inflation rider that can be purchased at an extra cost. Sometimes inflation riders are purchased with a lump sum, other times they are paid for over time.

These riders assure that the long term care benefit pool will increase each year by a predetermined percentage – say 3%. Compounding inflation riders can be valuable for younger buyers as they help the policy keep pace with the rising cost of LTC expenses.

Medical Underwriting Requirements & Tobacco Use

Typically long term care annuities require less medical underwriting than traditional LTC plans or hybrid life insurance plans. If you have been turned down for traditional long term care, then you might be a good candidate for a hybrid annuity policy.

Like most insurance policies, it is advantageous to apply while you are young and in good health. In some cases, your LTC benefit pool will offer increased leverage (more money) if you can safely answer no to a few health questions. Otherwise, your pool of money might be leveraged 2X instead of 3X over.

Usually a phone interview and medical records request are all that are needed to satisfy any underwriting requirements. And it’s worth noting that some hybrid annuities do not automatically penalize applicants for tobacco use.

Hybrid Annuity Accounts Avoid Common LTC Issues

The most common complaints about traditional annual-pay LTC insurance plans are the ongoing premiums and yearly increases. Most people are reluctant to purchase something they might not ever use – especially when the premiums can increase. Hybrid annuity accounts avoid these issues as owners maintain control over their assets – and premiums (if any) are guaranteed never to increase.

Additionally, non-qualified annuity accounts allow for two owners. Couples do not need to purchase two separate polices as is usually the case with traditional long term care. Two people can be insured under one hybrid annuity allowing for less overall investment. This is a distinct advantage for spouses who are both interested in coverage.

Tax Advantages, Return Of Premium & Surrenders

Hybrid annuities offer significant tax advantages through tax qualified payouts and 1035 exchange rules. First, you can use the IRS 1035 exchange rule to move your deferred gains from an existing non-qualified annuity to a hybrid policy on a tax-free basis. Second, all payouts from a hybrid annuity for qualified LTC expenses (including old and new interest gains) are not subject to income taxes. You can read more about the tax advantages here.

And if you change your mind about your investment, many long term care annuities will allow for a full return of premium – without a surrender penalty. Those that do have a surrender penalty will impose this fee on the accumulated value. The usual amount of time before a hybrid annuity is out of its surrender period is 10 years.

Contact Us For Quotes, Illustrations & Information

We specialize in long term care planning using both hybrid annuity and life insurance policies. We believe leveraged asset planning is an integral part of creating a secure retirement for you and your loved ones.

There are several carriers offering hybrid annuity accounts and we can help you compare and contrast them all. Contact us today for more information.