If there is a knock against fixed annuity accounts lately, it’s low interest rates. The Federal Reserve has kept rates low for several years to spur economic growth. In turn, the stock market has provided much higher returns than most fixed interest investments.
In response to the overall economic climate, State Life has issued the first true hybrid long term care annuity that credits interest based on the performance of certain indexes – like the S&P 500. This is good news for those interested in hybrid annuities as they now have access to increased returns each year and larger payouts for long term care expenses.
First there were simple fixed annuities that worked much like bank CD’s. Then there were fixed-indexed annuities that offered enhanced growth prospects without exposure to downside market risks. Next came hybrid long term care annuities that could only increase in value based on declared fixed interest rates.
But now, finally, there are indexed hybrid LTC annuity accounts. These policies may just be the best of all worlds. We have written about hybrid annuities extensively and think they offer a very good alternative to traditional long term care. We won’t rehash their popular attributes in this article, but you can read more about hybrid products here.
We have also written quite a bit about indexed annuities and what investors can expect from these unique accounts. You can learn more about indexed accounts here. Until now, there has never been a product that combined both indexing and long term care insurance.
Consumers who are interested in asset based long term care will find this new policy very appealing. It offers the ability to grow principal – and in turn future long term care benefits – by more than the one or two percentage points seen with other fixed interest hybrid annuities.
The most important new feature is index linked growth.
Indexed annuities offer a reasonable chance to earn 5% (or more) when the overall markets are moving upward. In very good years, double digit returns are possible.
But when the market goes down, the annuity value does not go down with it. Your growth is locked in each year and cannot be lost in future years. The annuity credits interest on your policy anniversary and then resets for a new year.
There is a fixed account available as well. You can invest in both the fixed and indexed accounts in the same year. In order to diversify, you can invest a portion of your single premium into the indexing accounts and the remaining funds in the fixed account. You can then reallocate in future years on your policy anniversary. There are no charges/fees for reallocation.
When your annuity grows, then the benefits it provides for long term care will grow as well. And that’s the goal – to find the most efficient way to create a pool of money for long term care – and to grow that pool in order to keep up with inflation. Our clients who invest in hybrid LTC policies are most interested in long term care insurance – and that’s what these products do best by creating a sizable pool of money for future LTC expenses.
This account also allows for spousal joint ownership. It eliminates the need for funding two policies over time when only one might be needed. This can allow you and your spouse to combine funds and put more money to work for you both. And both spouses can draw LTC benefits from the annuity at the same time if needed. That is a unique feature among asset based LTC policies.
Other important features:
The answer to that question is one of the primary benefits of asset based LTC insurance. If you don’t use or need them, then they pass to your named beneficiaries. This can be much more advantageous than buying into a traditional long term care policy each year if it goes unused. And most importantly, you never have to worry about rates going up with a hybrid annuity. Your single premium pays for everything all at once.
And of course, you could always cash in this annuity or transfer the account value to another policy if you wished. It is a ten year plan however – so it would be subject to surrender charges in the first ten years other than for death.
Taking withdraws for long term care purposes are never subject to surrender fees. LTC benefit withdraws can begin after one year. The annuity offers ten percent free withdraws each year penalty free as well. Most of our clients avoid withdraws (other than for long term care) as they want their annuity to grow each year.
This first of its kind annuity is a very exciting and appealing product. We believe that it satisfies what our clients have been wanting for some time.
Our independent insurance agency specializes in hybrid long term care and asset based insurance planning. Please contact us for a brochure and more information about this annuity today.