On January 1, 2010 the PPA added several provisions to speciﬁcally address annuities that include long-term care beneﬁts and riders. These new provisions have made nonqualiﬁed annuities with LTCI beneﬁts much more attractive to consumers.
Combo annuities were created to help protect your client’s risk boundaries, specifically their level of risk for retirement accumulation and insuring dollars are available if long-term care is needed.
The need for long-term care has never been greater. Despite the fact that 69 percent of people over age 65 will rely on some type of long-term care service or support during their lifetime, only 10 percent have acquired private long-term care protection. In 2009, the average yearly cost alone for a private pay room in a nursing home was $79,935. And the average long-term care stay was 3.7 years for women and 2.2 years for men, with roughly 20% of Americans requiring long-term care coverage for 5 years or more.
Below is a chart that shows the different levels of care that are routinely covered by combination annuities. You should check each particular policy to determine coverage.
Home Health Care
Assisted Living Facility
Adult Day Care
Services Homemaker Service
Fixed annuities, those CD-like investment vehicles that can provide an income stream for life, are a tough sell in the current low interest rate environment. However, if you're a risk-averse shopper who can't pull the trigger on a use-it-or-lose-it long-term care policy, an LTC annuity may be worth exploring.
The annuity approach has several advantages: You retain access to your money (although fees usually apply), the cost of the LTC rider may be less than an LTC policy, and you can obtain coverage without health underwriting if you've been turned down for a stand-alone policy.
The disadvantage: Besides that steep upfront investment, the rider fee can eat into your annuity's interest income, and you'll be locking that money up today at a relatively low rate.