Using an Annuity to Pay for Long-Term Care

Stan The Annuity Man, America's Annuity Agent and I'm dressed in red today. Not because there's some warning signal, but maybe you're looking for an answer for annuities in long-term care, which is an excellent question. Many people have that on their mind because long-term care is kind of that gorilla in the room, that little guy on your shoulder that's like, "You might want to address that, you might want to check that box." I'm assuming that's what you're looking at, which is, can I solve this with annuities? Well, the answer is yes you can. But I want to go deeper into that answer, show you some examples, and tell you the products on how to do that or how to use an annuity to pay for long-term care, which is also an idea. So, hang in there with me and we'll get to it.

Now, most agents are going to say, "Hey, I've got this great annuity that solves for long-term care and it's guaranteed issue. You don't have to do anything." And maybe that's happened to you. The short answer is that the best long-term care coverage is still traditional. And I don't sell traditional long-term care. I'm America's Annuity Agent. I'm Stan The Annuity Man, I'm licensed in all 50 states, but I don't sell long-term care. It's still a great product if you can find it, and it's affordable, etc. I do use a person that I refer that business to who's a long-term care specialist.

Product Types

But when it comes to annuities in long-term care, there are a couple of products out there. One of them is an Indexed Annuity or Variable Annuity with an Income Rider that has what's called a confinement care benefit rider on it. It's a guaranteed issue. What you typically see with those is that it doubles if you can't do either two of the six daily functions. There are some other parameters you have to hit in order for the income to increase. But in a perfect world, those types of products should be used as secondary coverage, not primary coverage.

Client Example

Here's what we're going to look at today, and this happened the other day. A gentleman called me and said, "I want to cover for long-term care, but I don't want to just take money out of my investments all the time. How do I do that? How do I take an annuity and pay for long-term care?"

There's no perfect answer. There really isn't. And here's the other thing too. If the government comes in with some universal care in the future, I don't know where long-term care coverage will go. Not many companies are left out there that even do traditional long-term care. But let's just say you have long-term care, and I don't sell that, but I could refer someone that very, very good, as brutally honest as Stan The Annuity Man, which is what you want. You don't want someone just selling you something. So, let's say the premiums on that, and I'm just going to grab a number just for math's sake, is $200 a month that you got to pay for long-term care coverage. And a lot of people say, "I hate long-term care coverage like that because, Stan, what if I never use it and all that money's gone to waste."

I agree. I mean, that's an issue. But you do the same thing for homeowners, flood, and car insurance. It's the same thing. I don't think you should look at it any differently. So, here's what we did for him. It was $200 a month. I said, "Here's what we can do. We can take an Immediate Annuity and solve for that $200 a month." Reverse engineer it. You can run an Immediate Annuity quote two different ways. You can say, "Hey, Stan, here's the lump sum. What income stream is that going to produce?" And by the way, it's based on your life expectancy at the time you take the payment. The payment is a combination of the return of principal plus interest. So, I ran it two ways for him and had him decide what he wanted to do.

I said, "We can do it like this. We can say life only." And life only means it's going to pay you for the rest of your life. But when you die, money goes poof. And when you die, you don't need long-term care anyway, right? Exactly. So, we ran that quote for him, and let's just say for math, it was $50,000. It was $50,000, and it was going to pay $200 a month for the rest of his life regardless of how long he lived, and it was going to fund that long-term care policy. And then I ran it this way. I said, "How much longer do you think you're going to live?" Now, that's a loaded question, but the guy was pretty opinionated, and he said, "I don't know, 10, 15 years."

I said, "Okay, let's run a 10-year certain annuity." A 10-year certain, what does that mean, Stan? That means that it will pay for 10 years, and after that, it's over. We still solved it for $200 a month, but it was a little bit less. It was like $45,000 or $42,000. Long story short, the 10-year certain was less than the life only. Why? Because it's for a specific period of time and life only was forever. Now, he eventually decided on life only. He said, "I'd like to do the 10-year certain because it's less money, but what if I live to year 11 and need long-term care?" Good point. And so, what he did was this, he did life only. He did it solving for $200. And what did he do? He did a turnkey approach to paying for long-term care as long as he was alive. The second he died, it was over.

I thought that was an excellent way to do it. I guess the downside to that is when he needed the long-term care, let's just say he paid into it, and we discussed this, but there are no perfect solutions. He turns on the long-term care at that time it happens. The $200 a month will still come into his estate as long as he's alive. I guess that's cool because there's still going to be a cost, etc. But that's an interesting way, an arbitrage way to use an annuity to pay for a long-term care benefit you want to ensure you have.

Qualifying for Long-Term Care

Now you understand how you can solve the problem, but I want you to understand and think about this for your specific situation. These are just stats, and they're hard stats to come to terms with, but they are what they are. In the long-term care world, when you qualify for long-term care, it's when you can't do two of the six daily functions of life. Those daily functions are stuff like feeding yourself, clothing yourself, bathing yourself, and doing things like that. And I think of that, and you're probably thinking the same thing: "Man, when that happens, life stinks, right?" I mean, I agree.

But we have to think like that. You can't do two of the six daily functions. I want you to go there, I know it's tough. You're going to live an average of three years and a maximum of seven. That's what the stats say. So, when you can't feed yourself or clothe yourself or bathe yourself, A, you're not going to live long. Life stinks anyway, right? But from the standpoint of coverage, the average is three years, and the maximum is seven. And you might be sitting out there going, "Not me. I'm going to probably live forever and be drooling on myself and whatever." I understand that.

But I wanted to get your head around long-term care coverage is for short-term coverage. Once you qualify for long-term care, there is a kind of rapid decline. And I know we're being a little morbid here, but we're also, me and you, talking honestly about the coverage. So, I would like you to consider that.

The other thing, put it in the back of your head, this might be a little bit crazy when I say it, but it's true. Most people that have $3 million or more investable assets, you either are out there going, "Stan, you're crazy, I don't have that." Or, "I might have that."

If you have that, you can pretty much self-insure, in my opinion. But even people with that type of investable assets like to transfer risk. And that's what you're doing when you're buying a long-term care policy.

Those are some things I wanted to talk to you about, about the reality of long-term care and as you're going into the planning. I encourage you to contact us at The Annuity Man. Let us put together scenarios for you and show you the good and the bad aspects of the contractual guarantee so you can make an informed decision.

So, from America's Annuity Agent dressed in red, Stan The Annuity Man, I'll see you next time.

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.