Articles for Financial Advisors

Long-Term Care In An Annuity

Long-Term Care In An Annuity

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 guaranteed living withdrawal benefits (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.


In 2010, health care costs accounted for 17% of the GDP; it is projected to reach ~ 20% by 2017. The typical person covered by Medicare will have out-of-pocket medical expenses of more than $4,300 per year ($8,600 for a couple). These figures include health care premiums, copays, and expenditures not covered by Medicare. It is estimated a healthy 65-year-old couple will need $260,000 to pay for health care and LTC costs for the remainder of their lives.


The cost of nursing home care is expensive: national average rates for a private room were $1,250 daily or $90,000 annually in 2010; the national average rate in 2010 for a semiprivate room was $78,000 a year.


Premiums for Medicare Part B are taking a growing bite out of Social Security checks. For 2012, Medicare Part B premiums will account for 8.2% of the average Social Security benefit, up from 5.1% in 2000. While the average Social Security check is 31% > it was in 2001, premiums for Medicare Part B have doubled.



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.

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