Annuity issuers could be about to go into the lab and come up with another way for your clients to pay for long-term care.
TIAA Institute recently published a paper by Leora Friedberg, a University of Virginia economist, and two colleagues about the kinds of "immediate needs annuities" that now help many older people in the United Kingdom plan for LTC costs.
An immediate annuity is a kind of income annuity, or an annuity designed to produce a stream of income soon after it's purchased.
When clients use stand-alone long-term care insurance, the clients and the LTCI issuers have to predict whether, when and how long the clients will need long-term care.
When clients use immediate annuities to pay for care, they and the issuers already know the clients will need income to pay for long-term care, and the contract states how big the income payments will be. The main source of uncertainty is the need to estimate how long the annuity buyers will live.
U.S. insurers offered immediate needs annuities aimed at the long-term care planning market in the early 2000s, but those efforts began to sputter out when LTCI issuers had to cope with big losses on their policies. The 2007-2009 financial crisis then poured more cold water on the U.S. long-term care annuity market.
Friedberg and her colleagues — Wei Sun and Anthony Webb — look in the new paper at how immediate needs annuities work and why they're currently more popular in the United Kingdom than in the United States.
The views of TIAA Institute papers reflect the views of the authors, not necessarily the views of TIAA or TIAA's institute, but TIAA is a big, influential financial services company. It has helped develop and promote many concepts that later influenced the rest of the U.S. financial services market, such as the idea of letting workers manage their own retirement plan assets and the idea of adding in-plan annuities to 401(k) plans. The new TIAA Institute immediate needs annuity paper could end up influencing future efforts to develop a new generation of long-term care annuities.
For a look at seven more things to know about the Friedberg team's paper, see the gallery accompanying this article.
Credit: Shutterstock
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.