Fixed-Rate Annuities 2

Linked-benefit annuities cover costs of long-term care insurance by providing a benefit that is a multiple or percentage of the annuity contract’s value. The insurer (annuity issuer) pays for this benefit by taking a fee from the contract. This type of long-term care protection usually costs quite a bit less than an individual long-term care policy; if the long-term care benefit annuity rider is never used, the contract owner still has something of value (the annuity). 

 

A potential advantage of a linked-benefit annuity is gaining protection without having to complete a medical questionnaire or pass a medical exam. During 2011, a modest number of fixed-rate annuities included GLWBs that doubled or tripled in value if long-term care was needed.

 

Long-term care insurance (LTCI) is purchased by individuals or through a company’s group benefit plan. Individually sold policies accounted for > 75% of LTCI premiums collected in 2011. Only a modest number (7.2 million) of Americans have LTCI.

 

Middle-income baby boomers have a number of concerns about future retirement: 21% have little or no confidence, 48% question their knowledge about investing, and 57% have not used an advisor or broker to coordinate their long-term finances.

 

People retiring today face two problems: retirement has become more expensive (longevity and health care costs) while traditional retirement income sources have diminished as the age to receive maximum Social Security benefits has increased and fewer Americans are covered by traditional pension plans and retiree health insurance.