To be clear, if you are looking for the most bang for your buck when it comes to Long Term Care insurance (LTC,) a stand-alone Partnership qualified plan is best. That said, such policies can be pricey over time, and they are a use it or lose it proposition. (Please read following blog post on Partnership qualified LTC policies.)
If you have a Certificate of Deposit (CD) earning close to nothing, a Long Term Care annuity may be just for you.
Long Term Care annuities (also referred to as linked benefit annuities or hybrid annuities) offer a guaranteed interest rate the first year and float thereafter. Today’s policies typically offer 3% the first year and 1% thereafter. There is a low monthly LTC fee each month that is usually guaranteed. Like most fixed annuities, LTC annuities allow you to cash out early with a surrender charge. Underwriting on LTC annuities is simplified.
Now for the good part. The Long Term Care benefit associated with the LTC annuity is triple the annuity accumulation value. EXAMPLE: If you deposit $100,000 into the LTC annuity and it grows to $110,000, the LTC benefit is $330,000. Generally, access to the $330,000 benefit comes after 90 days of not being able to do two daily living activities. Is there a catch? Well, kind of. The maximum tax-free $330,000 LTC benefit is spread out over six years ($55,000 a year.) The average nursing home stay is under three years. On the other hand, cognitive issues like dementia are trending higher, and care lasting much longer.
The bottom line is that for those with a CD, an LTC annuity will likely pay more interest even after the monthly LTC fee is deducted, plus you receive the added benefit of LTC insurance.
Think of LTC annuities as high deductible LTC insurance policies. When tapping into the $330,000, the first two years of benefits is actually your initial $100,000 deposit plus the $10,000 in interest. In the third year you are dipping into the insurance company’s money.