Using Annuities to Cover Long-Term Care Costs

The retirement of baby boomers is causing more Americans to require long-term care services, which has led to an increase in the cost of at-home, assisted living, and nursing home care. The cost of long-term care varies across the US, depending on your state and region, as well as the level of care needed, but the annual average in the US is $54,000. The typical stay in a facility is three years.

Long-term care expenses can pose significant financial challenges, especially for individuals planning for their future and hoping to pass along some valuable assets to their children. One effective strategy to help pay for long-term care costs is to use an annuity along with other financial planning strategies.

An annuity can offer a unique opportunity to provide a steady income stream that can be used to cover long-term care expenses while ensuring financial stability. This article will explore how annuities can be used to pay for long-term care and provide peace of mind for individuals and their loved ones.

What Is an Annuity?

An annuity is a financial product offered by insurance companies that provides a regular income stream in exchange for a lump-sum payment or a series of premium payments. Annuities can be immediate or deferred, and can offer different benefits and payout structures.

Immediate Annuities

An immediate annuity is compliant with Medicaid and a good option for preserving assets if you know you will be applying for Medicaid in the future. This type of annuity allows you to turn assets that would normally be countable toward benefits eligibility into noncountable assets. This is possible since an immediate annuity can’t be cashed in or canceled.

The way an immediate annuity works is a single, large payment of money is made to an insurance company in exchange for monthly payments. The payments start immediately and can be for a pre-determined period or for the life expectancy of the annuitant, which is the person receiving the payments.

Deferred Annuities

Deferred annuities are not compliant with Medicaid and should not be used if you are planning to apply for benefits. Medicaid considers deferred annuities as countable assets. Similar to an immediate annuity, a deferred annuity involves a large investment upfront. But instead of receiving payments immediately, payments are deferred for several years. Deferred annuities can be canceled, and the money can be withdrawn at any time. Greater control over the account activity is why they are considered countable assets.

Variable and Fixed Annuities

Immediate and deferred annuities can be variable or fixed. Fixed annuities offer payments that are the same amount each month. With variable annuities, payments vary based on how well the annuity’s investments perform. Most variable annuities are not Medicaid compliant.

Start Early

Planning for long-term care should ideally begin early in life. By purchasing annuities when you’re younger and healthier, you can secure more favorable rates and lock in lower premiums. This proactive approach enables you to accumulate more funds to meet future long-term care expenses over time.

Evaluate Your Options

It’s important to thoroughly research and compare different annuity products available in the market. Consider factors such as fees, surrender charges, income payout options, and the specific long-term care benefits they provide. Seek advice from a financial professional who can guide you in selecting the annuity that aligns with your unique needs and goals.

Assess Your Long-Term Care Needs

Before investing in an annuity for long-term care, carefully evaluate your potential long-term care needs. Consider your health history, family medical history, lifestyle, and current financial situation. Understanding your specific needs will help determine the appropriate type and amount of coverage to meet your goals.

Find the Annuity that Fits Your Needs

Annuities offer financial flexibility, allowing you to tailor the contract to suit your long-term care needs. Depending on the annuity product, you can choose between a lump-sum payment or a series of premium payments. Ensure that the chosen annuity provides options for income withdrawal that align with your long-term care requirements.

Consult a Professional

Given the complexity involved in annuities and long-term care planning, you should consult a financial advisor, an insurance professional, or an elder law attorney specializing in long-term care and Medicaid planning. They can provide valuable guidance based on your individual circumstances and assist you in structuring a comprehensive plan that integrates annuities effectively into your estate planning strategy.

This article offers a summary of aspects of estate planning law. It is not legal advice, and it does not create an attorney-client relationship. For legal advice, please contact our office today at (954) 315-1169 to schedule a consultation.