The ABCs of the Long-term Care Annuity	back to home

The long-term care annuity is simply a traditional tax-deferred annuity with additional long-term care benefits.

Most people are genuinely concerned about the possibility of needing long term care, but very few people are actually willing to pay for it. It is logical, that a sound financial plan should include a method for coverage of nursing home care. The insurance industry has figured out how to combine the protection of a fixed annuity and the need for long term health care needs.

Here is how it works:

A qualified owner uses a portion of his or her account value to pay monthly long-term care premiums. For example, the cost may be simply .6% or 60 basis points for a male age 65, which would be deducted from credited interest to his account, for a two year benefit which we will explain below. A three year benefit may be .3% or 30 basis points which would be deducted from credited interest to his account. So, if the base interest rate on a particular long-term care annuity were 3.6%, the male 65 would be credited 3% to his account value. After an initial waiting period of three years passes, (which is a necessary component due to adverse selection and actuarial assumptions), were the owner of the annuity contract to go into a nursing home, the annuity value is used to provide long-term care benefits up to a daily maximum. After the client's account value is depleted, the insurance company will continue to pay additional benefits up to an amount that matches or doubles the account value. This type of annuity fills an important gap in nursing home care coverage, and is proving to be both an excellent value and a popular choice for today's retirees.

When one applies for the long-term care annuity, he or she may choose from one of four possible benefit options.

Sample Long-Term Care Benefits:

If a 65-year old male places $100,000 into this long term care annuity, a premium would be deducted from his account value monthly to pay for his Long-Term Care Rider. Long-term care benefits are based on his selection chosen from the table on the previous page. Let's assume he chose an Aggregate Benefit Limit of 200% and a Daily Benefit Factor of 2 Years.

See how his Account Value and long-term care benefits grow:

Client Selections and Benefits: An Example

End of Year	Annual Premiums Deducted	Account Value (Includes premiums deducted and interest credited)	Aggregate Benefit3	Daily Benefit (For four years)
1	$619.00	$102,831	---	---
2	$636.52	$105,742	---	---
3	$654.54	$108,736	---	---
4	$673.07	$111,814	$223,628	$153.17
Remember the individual started out with only $100,000, but received $223,628 in long term care benefits.

• The client's Account Value of $111,814 is paid up to a maximum $153.17 daily benefit for two years.
• Then, the insurance company would pay an additional $111,814 for covered benefits at a maximum $153.17 daily benefit for two years.
• In total, this client receives benefits of $223,628 for covered long-term care expenses over the course of four years. This example assumes no withdrawals.

What if I never need Long-Term Care? Remember that you purchased an annuity with a long-term care rider, meaning, you still own an annuity. The annuity has an account value which you can liquidate completely, take lump sum withdrawals of up to 10% of account value, simply take the interest, allow your balance to continue growing, or annuitze and receive an income stream which you cannot outlive.