Traditional LTCI Vs. LTC Annuity

[dmarbell]

I am having a little trouble wrapping my head around comparisons of products. At first, the LTC Annuity combos (annuities with LTC riders) seemed to be very desireable - some growth of contract value, so that someone gets the proceeds if LTC is not needed. It seemed to be better than the lost opportunity cost of "term" LTCI, if not used.

However, depending on rate of return, it seems that an annuity like a FIA with withdrawals to fund traditional LTC, will do the same thing. Especially with the discounts offered for insuring both spouses by some companies.

Anyone out there have a good, objective comparison of the products?

Anyone out there selling much of the LTC Annuities?

Danny

 

[Mr_Ed]

I am having a little trouble wrapping my head around comparisons of products. At first, the LTC Annuity combos (annuities with LTC riders) seemed to be very desireable - some growth of contract value, so that someone gets the proceeds if LTC is not needed. It seemed to be better than the lost opportunity cost of "term" LTCI, if not used.

However, depending on rate of return, it seems that an annuity like a FIA with withdrawals to fund traditional LTC, will do the same thing. Especially with the discounts offered for insuring both spouses by some companies.

Anyone out there have a good, objective comparison of the products?

Anyone out there selling much of the LTC Annuities?

Danny

The problem with the LTC/Annuity combo is that THEIR money is at risk. Their money is used FIRST if they need long-term care.

If they buy two separate products (e.g. an annuity and a traditional LTCi policy), their money is NOT at risk, and the return on the annuity can pay the premium (and if you do it right, the money earned on the annuity can be used to pay the LTCi premium WITHOUT paying tax on the earnings).

 

[GreenSky]

Two separate markets. The combo policies are for people who have decided to self-fund. I tend to like this concept.

This is the area of insurance that I'm moving into for 2011. I have a seminar scheduled in two weeks to present both the life and annuity linked benefit concepts. If someone would rather pay $2-5,000 a year for LTC, I'll be happy to write that also.

Rick

 

[dmarbell]

(and if you do it right, the money earned on the annuity can be used to pay the LTCi premium WITHOUT paying tax on the earnings).

I assume you mean the annuity payout is matched against the LTC premiums, as in itemized deductions? Or the exclusion of the basis in an annuitization?

Most folks in this tax bracket will have medical expense in excess of 7.5% of AGI, so the matching can take place. Otherwise, enlighten me.

Thanks for the help. The first $ at risk does clarifiy my thinking.

Danny

 

[Mr_Ed]

I assume you mean the annuity payout is matched against the LTC premiums, as in itemized deductions? Or the exclusion of the basis in an annuitization?

Most folks in this tax bracket will have medical expense in excess of 7.5% of AGI, so the matching can take place. Otherwise, enlighten me.

Thanks for the help. The first $ at risk does clarifiy my thinking.

Danny

I was not referring to the itemized deduction of the LTCi premiums. That is one of the weakest methods for using tax-favored dollars for LTCi.

The PPA allows for tax-free transfers from the gains of annuity and life insurance contracts directly to LTC insurance policy premiums, via a 1035 exchange.

Normally, the gains on an annuity (or a life insurance policy) would be taxed when withdrawn to pay for LTCi premiums. Transferring these gains from an annuity or a life insurance policy, directly to the LTC insurer to pay the LTCi premium (via a 1035 exchange) is a non-taxable event.

There are 10 different ways to pay LTCi with tax-favored dollars. Here's a link to a list of them, with a brief explanation for each:

10 ways to reduce your taxes with long-term care insurance « LTCShop.com




sao

 

[dmarbell]

Thanks for the info and the link.

Danny

 

[MedSuppPro]

N_a_d_m,

Very interesting, but wouldn't a ten pay be better? I mean these plans tend to see their premiums explode beyond any tax savings.

 

[Mr_Ed]

N_a_d_m,

Very interesting, but wouldn't a ten pay be better? I mean these plans tend to see their premiums explode beyond any tax savings.

There are two types of LTCi policies that can never have a rate increase.

Here's a short summary of the two:

How much and when can long-term care insurance premiums be increased? « LTCShop.com





nadm

 

[Jeff.S]

Intersting points and counter points. However, for the vast majority of seniors, qualifying for LTCi is a long shot at best, which makes purchasing a stand alone policy nearly impossible. And for those that do, why would they buy a single premium LTC product and lose access to available funds in case of other likely emergencies?

Personally, I believe the PPA Annuity and Annuity/Life products that provide LTC benefits to make more financial sense for the average Senior. They appear to have easier qualifying, leave funds available for other use and DO NOT have the potential for future rate increases. Add to this the ability to make transfer/exchange of Qualified AND Non-qualified accounts into a leveraged Living benefit.... you have the makings of an excellent hybrid product.

One note, look for products that do not exclude benefits for cognitive impairment.

These new products should be a boom for all educated annuity producers. These products will make for a great niche in the Senior Seminar Market, at least I think it will for me.

 

[yankee466]

since Genworth just discontinued sales of their annuity LTC product due to poor sales, I wonder how the other carriers are doing.

Else, your statements about easier to qualify for and no rate increases are both incorrect. The cost of the LTC rider can increase, which can result in lesser benefits than originally planned on some of these products, and the UW is still pretty strict in general....with exceptions of course.

Even though I am not a fan of any of the linked benefit plans, the Life/LTC products appear to offer more bang for the buck.