Hybrid annuity accounts are part long term care policy and part annuity. They provide leveraged payouts for long term care expenses while also offering many advantages of a fixed annuity policy.
We offer hybrid long term care annuity accounts from several insurance carriers. We’ll help you compare and contrast plans to see which policies are a good fit for your health and estate planning needs.
Hybrid annuities are a combination of a fixed annuity and a traditional long term care policy. Your funds grow at a declared interest rate each year. Should you need long term care, the account value is increased by a multiplier. If care is not needed, the funds are available to withdraw or as an inheritance.
Most often, hybrid policies are funded with a one-time single premium. In other cases, policies can be funded/purchased over a set number of years – say $10,000 a year for ten years. All things being equal, long term care benefit pools are larger when the policy is funded with a lump sum.
The size of your LTC pool and the time it lasts depends on a few factors. Your total investment, potential usage, multiplier effect, and ownership all help determine payouts. For instance, a jointly owned policy might last longer than single coverage.
Single and jointly owned policies are both available. Our married clients usually prefer to pool their funds for increased benefit payouts. This helps when only one spouse needs the majority of the pool of money for care.
Hybrid annuity policies from different carriers will work in different ways – one size does not fit all. In general, a hybrid annuity will declare the daily or monthly benefits each year as policies increase in value. Benefits can be used for care in your home, assisted living facility, adult daycare, nursing home or hospice setting.
If you’re using less than your allocated LTC benefits, your policy will last longer than the declared term. For instance, a six year plan could last seven years if you didn’t use all of the monthly benefits available.
Most policies offer 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. Most carriers offer inflation riders that increase the LTC benefit pool. This is above and beyond the annuity’s normal interest growth.
If your long term care expenses go unused, you can withdraw your premium and/or interest gains like a normal annuity. 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 increase in value each year. The first is through normal interest gains 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.
Hybrid annuities have an internal cost for the LTC insurance, however. If interest rates are low, then the cost of the LTC rider and the interest gains can cancel each other out. In other words, your annuity policy might not grow in a low interest rate environment, but your LTC benefit multiplier pool will never decrease in value.
To guarantee policy growth, many LTC annuities offer an inflation rider. This rider has an extra cost. Inflation riders can be purchased with a lump sum or through the life of the policy in some cases.
Inflation riders guarantee your long term care benefit pool increases each year by a predetermined percentage – say 3%. Compounding inflation riders are valuable for younger buyers as they help the policy keep pace with the rising cost of LTC expenses.
Long term care annuities typically require less medical underwriting than traditional LTC plans or hybrid life insurance plans. If you were turned down for traditional long term care, 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 (larger benefit pool) if you can 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 a medical records request are all that’s needed to satisfy underwriting requirements. And it’s worth noting some hybrid annuities do not penalize applicants for tobacco use.
The most common complaints about traditional LTC insurance plans are ongoing premiums and yearly increases. Most people are reluctant to purchase something they might not ever use – especially when the premiums increase often. Hybrid annuity accounts avoid these issues as owners maintain control over the account – and premiums are guaranteed never to increase.
Additionally, non-qualified annuity accounts allow for two owners. Couples do not need to purchase two separate policies as is the case with most traditional long term care coverage. 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.
Our clients like hybrid annuities for their significant tax advantages. Tax-free benefits and generous 1035 exchange rules allow for easy estate planning.
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 length of time before a hybrid annuity is out of its surrender period is 10 years.
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 highly-rated carriers offering hybrid annuity accounts across the country. We can help you compare and contrast them all. Contact us today for more information.