One reason people are reluctant to purchase long term care insurance is that they think they’ll never need LTC services. Yet two-thirds of people age 65 today will need such care in the future. A “hybrid” annuity, offering LTC benefits with the annuity, might be for them.
Here are the sober realities. Many clients may think they can self-fund their LTC expenses. Yet in 2006, the national average private pay cost of care in a nursing home was about $75,000 per year for a private room. With costs like that, self-funding is not an option for the majority of people.
Others think the government will take care of them. However, many people just don’t realize that Medicare was never intended to pay for LTC. And for those who want to pass on what they’ve worked for their entire lives, Medicaid can be ruled out because of strict asset spend-down requirements.
Advisors know that stand-alone LTC insurance can be a good solution to fund LTC needs. But convincing clients that the potential need justifies the cost can be a challenge.
In cases such as these, another option to consider is a hybrid annuity with LTC benefits.
Hybrid products have been criticized in the past as not fully protecting long term care needs. However, these products have evolved to a point where they may be just what your clients are looking for.
Many hybrid annuity products include a LTC rider. If clients don’t need LTC, they still have access to their funds, including the ability to annuitize their contracts. If LTC is needed, the annuity will fund their care until the annuity is depleted-typically over a 2-year period. Then the LTC rider will pay for at least 4 additional years of services. With one lump-sum premium, then, the client can have the reassurance of LTC protection for up to 6 years if needed.
Here’s an example of how a hybrid annuity might work: