Hot New Product: Long Term Care Annuities

In the next few minutes you will learn about aThe insurance industry is very competitive. This
new insurance industry product that provides longvery competition engenders new thinking and
term care insurance coverage if you ever need it,creative policies. Enter "Long Term Care
but requires no policy, premiums or healthAnnuities."
qualifications.There are only a few companies offering this
Why Seniors Don't Buy Long Term Careproduct and the structure differs from company
1. In my experience, over half the people whoto company. To give you a general overview of
shun long term care insurance do so becausethe concept and mechanics, I am going to
they feel they will never need it. It is difficult todescribe the main aspects of one carrier's
visualize going to a nursing home. Statistically, halfcontract. Check with your financial planner for all
of these people will be right.the options.
However, there are a number of scenarios whereThe underlying base of an "LTC annuity" is an
the person may need some kind of assistanceannuity. Nothing new here; annuities have been
but never see the front door of a nursing home.around for a hundred years. They are safe, the
In fact, most people who need long term carefunds accrue at a competitive interest rate, and
can receive care without ever leaving their home.the account grows tax-deferred.
When you stop and think about it, the decisionTo form an LTC annuity, the insurance company
not to buy long term care insurance is a decisionhas built in a "long term care option." It is not a
to self insure. This can be costly and possiblyrider. There is no premium. It is simply an option
devastating.you elect if long term care is ever needed. Sweet.
The average cost of a nursing home today isTo qualify, a person only needs to lose two of six
$80,000 per year and rising. At that rate, itADLs (activities of daily living). ADLs are insurance
doesn't take but a few years to grind through acompanies' method of determining the qualification
modest estate. If both the husband and wifefor levels of care. They are eating, bathing,
need nursing home care, the time to dissipate andressing, toileting, transferring (walking) and
estate is cut in half.continence.
A person can spend 40 years in a career buildingThe person doesn't have to be in a nursing home.
a retirement nest egg. They spend another 40+They simply need to have demonstrated the
years conservatively managing their money whileinability to perform two of the six ADLs to qualify
trying to keep up with inflation. If they need to goto put the long term care option in their annuity in
into a nursing home during the last five years ofaction.
their life, it all could be gone quickly.An Example
It doesn't have to be that way as you will soonIf a male, age 60, places $200,000 into an LTC
see.annuity, assuming a conservative interest rate,
2. Many people think long term care insurance isthe policy would grow to $300,000 in ten years. If
too expensive. They may be right.the $300,000 were converted into a life income,
If a person waits too long to apply, they maythe person would receive $2,200 per month for
have sticker shock. The rates are based on age.the balance of their life. An 8.8% return. Not too
However, long term care comes with a lot ofbad, considering it is guaranteed no matter what.
bells and whistles. When you strip away some ofIf this person needs long term care at age 70 by
the options that may be nice to have, but notvirtue of losing two of six ADLs and elected the
essential, the premium is a lot lower.long term care option, the life income would jump
If a person looks at a plan that covers hometo $4,500 a month.
health care only, the premium is lower yet. ThisConclusion
takes care of the 50% who never will need to goThese new products, long term care annuities,
into a nursing home.provide the option to receive long term care
The only thing better is coverage without abenefits only if they are needed. There is no
premium, which I will get to in a minute.separate long term care insurance policy, no
3. Most people react to a problem only when thepremiums and generally little or no underwriting.
problem surfaces. If a person waits to apply forNow there are no excuses. Those who feel they
long term care insurance until they arewill never need long term care will simply never
experiencing health problems, any long term careexercise their LTC option. Those who find long
insurance plan may be prohibitively expensive orterm care too expensive have an alternative with
altogether unavailable.no premiums. Moreover, those who have health
The Solution: The Long Term Care Insuranceissues can obtain long term care benefits, as
That is Not a Policyunderwriting is simplified or non-existent.