Long Term Care Annuity-Life Hybrid Plans
There are annuity long term care insurance products on the market that can help plan for future potential long term care bills. These Long Term Care Annuity Products are different products from the traditional long term care insurance plans that have been popular the past thirty years. One of the things that can discourage people from buying the traditional long term-care insurance is the idea of paying premiums for years and never using the policy. This would be exactly like you home or auto insurance, if you don’t use it you lose it.
People forget that almost all insurance is like that but long-term-care insurance is such an emotional product because it hard to imaging yourself needing care for years and years.
Hybrid long term care insurance policies
One way to avoid spending a lot of money directly on a long-term-care policy while still getting its benefits is to buy an insurance policy with a long-term-care rider.
These hybrid policies work variously, but the type that has gotten the most attention is a long-term-care annuity. Beginning in 2010, the IRS will let those who hold one of these deferred annuities use the money to pay for long-term care free of federal taxes. Annuities allow money to grow tax-free, but the tax man has to be paid when the money is removed. These long-term-care annuities free holders from this obligation.
Several insurers, including Mass Mutual, Lincoln Financial, Nationwide, John Hancock, Pacific Life and OneAmerica (State-Life), now offer hybrid deferred annuities long term care plans.
Hybrid long term care deferred annuities operate this way:
For example, say $100,000 is put into the plan. These also can be funded through another annuity contract or life insurance policy (except term insurance) through the IRS tax free 1035 exchange process.
Purchasers then choose the amount of long-term care coverage they want, usually 2-4 times what they put in the annuity. The coverage wil last as long as their is money left in the LTC pool of benefits Adding inflation protection coverage will grow the pool of money over time.
Genworth uses this clear-cut example:
A 60-year-old purchases a $50,000 long-term care annuity with 5 percent inflation protection compounded annually with a 200 percent coverage maximum and a six-year benefit period. So, his initial long-term-care coverage maximum is $100,000 — double the premium he paid. (If he had refused inflation protection, then he could have chosen three times the premium, or $150,000.)
If he makes no withdrawals over 20 years at a 3.5 percent compound interest rate, minus administrative fees, he would have — under the 5 percent inflation-protected scenario –$265,330 available in long-term-care insurance. Or a monthly maximum of $3,685.
If this person never needs long-term care, then the annuity can be redeemed for its accumulated value when it matures at 20 years — or it can be left to accumulate further interest and the long-term care policy will remain enforce.
When this person dies, his heirs will inherit the greater of the accumulated annuity value, if there have been no withdrawals, or the single premium he paid initially less the amount of long-term care paid.