Emerging Trends for Long-Term Care

Good to Know

The traditional approaches and challenges to managing long-term care costs are:

Self-insurance — the risk of depleting savings (e.g., retirement portfolios),
Buy insurance — sharply increasing premiums plus increasingly tight underwriting requirements, and
Medicaid — poverty generally required to qualify.

It’s been said that nature abhors a vacuum and it appears that the financial markets act the same. Into the LTC market “vacuum” we see developing trends, including LTC hybrid annuities. The annuities were slow to gain acceptance but are now gaining in popularity. This article will focus on the major pros and cons of the LTC Annuity for those who have no LTC cost management plan or those with a plan searching for a better alternative.

Pros and Cons of Hybrid LTC Annuities

Pros	Cons
Guaranteed Benefits – Benefits are guaranteed by the full faith and credit of the insurance company and may also qualify for coverage under state-sponsored guaranty programs in the unlikely event the insurance company becomes insolvent. Income Taxation - Benefits may be tax-free and premiums may be tax-deductible, depending on individual circumstances. Flexibility - You may receive a combination of monthly annuity payments, long-term care insurance coverage, and a death benefit. Enhanced eligibility – You may be eligible for a hybrid LTC annuity, even if you’ve been turned down for traditional LTC insurance.	Relatively High Upfront Premium – a one-time premium of $50,000 or more may be required. IRAs and 401(k) plans may be able to purchase the annuity without immediate income tax impact, depending upon the specific facts and circumstances. Smaller Annuity Payout – The cost of long-term care insurance reduces the monthly payout vs. an annuity without LTC benefits. Reduced Death Benefit – Distributions for LTC costs may reduce the death benefit. Complexity and Fees – Hybrid annuities are more complex than long-term care insurance and fees may be higher than in traditional investments.

Pros

Cons

Guaranteed Benefits – Benefits are guaranteed by the full faith and credit of the insurance company and may also qualify for coverage under state-sponsored guaranty programs in the unlikely event the insurance company becomes insolvent.
Income Taxation - Benefits may be tax-free and premiums may be tax-deductible, depending on individual circumstances.
Flexibility - You may receive a combination of monthly annuity payments, long-term care insurance coverage, and a death benefit.
Enhanced eligibility – You may be eligible for a hybrid LTC annuity, even if you’ve been turned down for traditional LTC insurance.

Relatively High Upfront Premium – a one-time premium of $50,000 or more may be required. IRAs and 401(k) plans may be able to purchase the annuity without immediate income tax impact, depending upon the specific facts and circumstances.
Smaller Annuity Payout – The cost of long-term care insurance reduces the monthly payout vs. an annuity without LTC benefits.
Reduced Death Benefit – Distributions for LTC costs may reduce the death benefit.
Complexity and Fees – Hybrid annuities are more complex than long-term care insurance and fees may be higher than in traditional investments.

CAVEAT — this article is intended to inform your conversation with an experienced financial advisor who can help you choose a solution that fits your unique needs and financial resources.

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The material contained in this article is to raise awareness—it is informational, general in nature and does not constitute financial advice. It should not be relied upon or used without consulting a credentialed financial professional to consider your specific circumstances. This communication was published on the date specified and may not include any future changes in the topics, laws, rules or regulations covered.

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