OVER 70 Yr’s OLD: the hybrid long-term care annuity option

October 6, 2022

2 minute read: Mom, Dad, You, thinking about the cost of long-term care? Have you considered a long-term care insurance policy yet? Both questions have expensive results. What about a qualified long-term care LTC annuity?  A very interesting option. 

According to the U.S. Census Bureau, the fastest-growing segment of the population is adults age 85-100. Because of improved health care and medical technology, many are expected to live even longer.  Unfortunately, while this portion of the population swells, few are holistically prepared for a long-term care event and the costs associated with it.

Many  want long-term care coverage, but  can’t afford it, or  don’t qualify for it.  Others are in denial that they would ever need it or are misinformed as to what coverage entails.  Finally, some are hesitant to pay premiums for a policy they may never file a claim on. Fortunately, many of the same individuals, those ages 70-85, could be ideal candidates for a Hybrid Long-Term Care Annuity.

The way the products are designed, the client will either use the long-term care benefit without incurring any tax penalties or, if they never have a long-term care event, can pass the death benefit on to a beneficiary. It’s well known that nonqualified deferred annuities are a popular solution for Americans planning their retirement because they offer tax-deferred growth and the opportunity to provide a source of income.

According to a 2013 Gallup Poll where nonqualified annuity participants were interviewed, 86% of people buy one for its tax-deferred accumulation.While some decide to annuitize their contract, most clients never do. So, what would cause you to spend this money?  It turns out 73% say it is an emergency fund, they do not need the income, it would be in case they need assistance. The downside for many clients using their current, nonqualified funds for a long-term care event is that it can come at a hefty price with fees and taxes.

Here are the facts: Tucked inside the Pension Protection Act of 2006 is a special exemption for those holding nonqualified annuities.  The provision allows policyholders to make withdrawals for long-term care events (such as at-home nurse visits and live-in facilities) tax free.  These withdrawals are also not counted as income but rather as a reduction of cost basis.  The catch is that, because nonqualified annuities are a form of tax-deferred growth, only select products qualify.  The exemption allows policyholders the ability to access the bases of the annuity rather than the growth, preventing a taxable event from occurring.

In summary; While many annuities may carry long-term care provisions, few can touch the benefits that a true Hybrid LTC Annuity can offer. That starts with an annuity’s easier underwriting requirements.

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