There are a number of ways that you can integrate annuities into your clients’ long term care plans — and some better than others. Regrettably, not many producers know there are annuities that are specifically designed to address the potential cost of long term care. These long term care annuities (LTCA) not only provide coverage for those who will eventually need LTC benefits, but they also have the traditional safety and tax-deferral features for those clients who may require limited or no LTC services.
Before getting into the finer points of LTCAs, we need to address a few issues about this subject. There are two main points here. The first is that long term care planning requires a strategy that addresses any financial liabilities. In other words, which of the client’s assets are earmarked for the cost of long term care? In addition, clients can buy long term care products in order to provide cash benefits to pay for part or all of the costs of long term care, regardless of its length.
A lot of producers discuss long term care waiver riders as if they were some type of long term care coverage. In fact, they aren’t. They are simply riders that waive whatever surrender charges remain on the contract. And they only take effect if the owner meets certain requirements, such as the length of confinement, a physician’s certification of long term care needs, and proper certification of the facility providing the services. Although these types of waivers can be beneficial, they are not and should not be presented as long term care coverage. They also should not be considered long term care planning unless those specific annuities are earmarked as an asset to be used only for long term care. In fact, most annuities also allow for a 10 percent penalty-free withdrawal, which is not sufficient for long term care planning.
When it comes to actual long term care planning, annuities are commonly used to fund the premiums of a long term care policy. While this may seem to be a logical approach, in order to ensure its validity, the annuity should be funded at a level that not only meets the current premiums, but which can also provide the necessary cash flow without dipping into principal to meet possible premium increases.
A second issue that should be ad-dressed is that either these annuities or other blocks of assets need to be earmarked to cover the LTCI elimination period. And finally, both the producer and the client must understand that this annuity is designed to fund a long term care policy. As such, it should be considered an asset that should be left intact and not one that will fund anything less than a catastrophic need for cash.
One important thing your clients should keep in mind when selecting an LTCA is how much coverage they should start with. The answer to that question can be easily ascertained with a simple LTC need calculator.
Those who sell long term care policies and aren’t aware of these annuities or simply don’t offer these products, may want to take the time to look into and review the advantages they can offer your clients and prospects.
Jonathan Neal is the senior partner at CCG-Capital Consulting Group, an Atlanta-based sales and marketing consulting company. He can be reached at jneal@ccgcap.com.