Long Term Care Annuity Accounts

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.

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.

There 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.