Long-Term Care Annuities

A long-term care annuity is a special type of deferred annuity. It combines a fixed interest rate, and possible indexing strategy, with long-term care benefits. Some unique features of LTC Annuities include:

  • The option to use existing nonqualified annuities or qualified money as a premium source.
  • Tax-free 1035 exchanges are possible for nonqualified annuities. Plus withdrawals are tax-free at time of claim.
  • Simplified health underwriting can make a long-term care annuity a good fit if you’re not eligible for traditional LTC insurance.
  • Premiums will NOT increase.

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How Does a Long-Term Care Annuity Work?

An annuity is a contract between you and an insurance company. A Long-Term Care Annuity is a deferred annuity with a long-term care rider.

This hybrid long term care insurance product, like a traditional deferred annuity, provides future payments based on an initial lump-sum investment. With a Long-Term Care Annuity, your long-term care benefits will typically be double or triple your investment.

For example, a $100,000 investment in an LTC annuity would provide $200,000 or $300,000 of long term care benefits. This can provide an annuitant with tremendous leverage of their premium dollars.

Long-term care annuity benefits are a pool of money with a monthly benefit cap. So an LTC Annuity with a $300,000 benefit could pay a monthly benefit for three or four years, depending on the monthly benefit selected. Some products can even pay benefits for an unlimited amount of time.

Access to benefits are triggered like long-term care insurance (when you have Cognitive Impairment or need help with Two out of the Six Activities of Daily Living).


Funding Long-Term Care Annuities

A popular way to fund an LTC Annuity is to reposition an existing annuity or other asset. Either qualified or nonqualified funds may be used.

Many people are able to perform a tax-free 1035 exchange from an annuity to an LTC Annuity.

Others pay their long-term care premiums from their IRA, or use funds from bank CDs, savings, annuities, life insurance, or retirement plans. And you may be able to increase your current return while protecting yourself with tax-free long-term care protection.


Long-Term Care Annuity Pros and Cons

LTC Annuity Pros

No Premium Increases
A hybrid annuity can be purchased using a single premium payment. This gives you the benefit of never having to worry about future premium increases. Guaranteed level premiums are not usually available with traditional LTC insurance. Knowing your premium will never change can be a big advantage of a hybrid long-term care insurance annuity. This can provide peace of mind beyond your long-term care protection.

1035 Exchanges
Options are available for repurposing existing annuity and life insurance policies via 1035 exchanges.

Tax-Free Withdrawals
Tax-free annuity withdrawals for long-term care expenses can be a great advantage of an LTC annuity. The tax free nature of your annuity will depend on the product and your personal situation. We can make a product recommendation and then refer you to your tax adviser for confirmation.

Premiums Invested Are Not Lost
Premiums invested in an LTC annuity are not lost if you don’t need care.

Simplified Health Requirements
A hybrid LTC annuity may have easier health underwriting than traditional LTC insurance. This can make a hybrid long-term care insurance annuity policy a great fit for someone unable to health qualify for traditional long-term care insurance. Health requirements vary by company.

LTC Annuity Cons

Up-front Premiums
Some policies require a large up-front premium payment so you might need to sell some investments. Yet, there are products that allow you to pay part of the premium over time.

Long term care benefits received may reduce the annuity value which could result in little or no death benefit for your heirs.

Tax Treatment
If you buy an annuity inside a qualified plan, such as a 401(k) or IRA, then the entire annuity is taxable, including the money you used to buy it and any earnings. Buying an annuity with after-tax dollars means only the earnings are taxed. Generally, long term care insurance benefits are not taxable.

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Our specialists offer objective guidance on a wide range of long-term care insurance products and strategies including LTC Annuities. Expect personalized service on topics such as:

  Choosing from a variety of long-term care insurance products

  Suggestions for the carrier best suited to your situation and goals

  Assistance with health qualifying for coverage

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Long-Term Care Annuity Providers

We offer long-term care annuities from multiple insurance companies. Which LTC Annuity provider we suggest will depend on your age, health and how much coverage you want.

Product Highlight: One of the best products available is Indexed Annuity Care from OneAmerica®. It’s changed the way many of our clients think about long-term care planning, especially those thinking about self-insuring this risk. Learn More > 


OneAmerica life insurance with long term care.


What is an Annuity?

An annuity is a contract between you and an insurance company. You make a lump-sum payment or series of payments and, in return, get regular guaranteed payments from the insurance company. These payments start either immediately or at some point in the future. Payments can be for a fixed period or for the rest of your life.

Types of Annuities

There are two main types of annuities – Immediate and Deferred.

Immediate vs Deferred annuity definition.

Immediate Annuity

With an immediate annuity, in return for your lump sum, the insurance company promises to pay you a regular income, according to the terms of the contract. You may want to have income for the rest of your life, or a limited period of time, such as five or 10 years.

In most instances, immediate annuity payments are sent to you starting one month after you buy your annuity. An immediate payment annuity is also known as a single-premium immediate annuity (SPIA), an income annuity, or simply an immediate annuity.

Deferred Annuity

A deferred annuity is an insurance contract that allows you (the annuitant) to delay or defer your income stream. Deferred annuities differ from immediate annuities in that immediate annuities often begin making payments right away. Designed for long term savings, a deferred annuity grows tax-deferred until you withdraw the money.

Deferred annuities allow your principal to increase before you begin to receive the stream of payments. The period when the investor is paying into the annuity is known as the accumulation phase (or savings phase). Once the investor starts receiving income, the payout phase (or income phase) begins.

Annuitants are unable to withdraw money from the annuity during the contract’s first several years unless they pay a surrender charge for withdrawals. For this reason, deferred annuities should be considered long term investments.

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