How can a fixed index annuity help you with health costs, specifically certain long-term care expenses? Nowadays, many fixed index annuity contracts come with a provision called a wellness benefit.
In some situations where you need certain kinds of long-term care, the income from your annuity can be “enhanced” for a certain time period. Your annuity income can increase, often double, in order to help you pay for long-term care and its high costs.
This enhanced income generally lasts for a certain period, such as up to 60 months (or five years). The benefit can vary from indexed annuity contract to contract, so your financial professional can go over the details, pros, and cons of any contracts you may be considering.
How Likely Is It that Someone Needs Long-Term Care?
Statistics show that over 50% of those aged 65 or over will need some form of long-term care at some point in retirement. Couples in this age group have over a 50% chance of one of them needing this type of care at some point.
The costs of long-term care can be staggering in many cases. A year of home healthcare can easily cost anywhere from $50,000 to $55,000 per year.
Yearly residence in an assisted living facility costs around the same. Then a semi-private room in a nursing care facility can cost as much as $90,000 to $100,000 per year, depending on where you are in the country.
Long-Term Care Insurance and The Rising Cost of Care
For this reason, long-term care insurance was created to help alleviate the cost of these services.
But the cost of long-term care has risen much faster than the overall cost of general goods and services in the past few decades. You can think of this as long-term care inflation outpacing ‘regular inflation’ consistently.
The number of people needing long-term care has grown, and the number of qualified caregivers is finite. This combination of factors has effectively caused the cost of long-term care insurance to rise as well.
Many long-term care policyholders have been forced to give up their coverage because of the rising costs of long-term care. The insurance company raised their monthly premiums to keep pace with this trend.
Furthermore, many people are denied coverage due to health conditions and other underwriting factors that keep them from being qualified for coverage.
Paying for Long-Term Care with Alternatives
However, there is another way to pay for long-term care in retirement.
Fixed index annuities with wellness benefits, life insurance with accelerated benefits, and asset based long-term care policies are just a few insurance-based options at folks’ disposal. Let’s talk more about fixed index annuities and the wellness benefits.
How Do Wellness Benefits Work?
Fixed index annuities with wellness benefits can increase your annuity payout by a factor of two, or sometimes even more, if you come to need this type of care. It effectively doubles or triples your payout for your long-term care need.
This form of financial protection is often less expensive than long-term care insurance. What if you don’t use the wellness benefit? Then you can still receive a “return” on your annuity money with other benefits, such as a lifelong income stream or a death benefit for loved ones.
More on Using Wellness Benefits for Long-Term Care
One important note is that a wellness benefit isn’t a long-term care benefit per se.
However, it does provide you with a higher payout if some form of long-term care is needed. Your situation also must qualify for this income “doubler” or “enhanced income” to be triggered.
For example, many fixed index annuity contracts require someone to be confined to a nursing home for a certain number of days in order to qualify for this. However, some contracts permit it for certain home healthcare situations as well.
The amount and scope of the benefit varies from one insurance carrier and annuity product to another. So, you can shop around to see who is offering the most generous benefits.
When Does the Wellness Benefit End?
Generally, the wellness benefit will pay the increased income until: 1) the contract value is depleted, or 2) a certain amount of time has passed, such as after two to five years.
Once this happens, the payout will generally go back to its original amount. For example, say you buy a $100,000 annuity that will pay you $500 a month for the rest of your life. If you then go into a nursing home, the payout will increase to $1,000 or maybe $1,500 per month until the insurance carrier has paid out $100,000 of income.
If you are still living after your contract value has been depleted, then your payout will revert to the $500 a month you were receiving before.
Planning for Long-Term Care Expenses
In most cases, this type of annuity won’t pay enough income to completely cover the cost of many types of long-term care. But they can greatly help reduce the amount of money that you would otherwise have to come up with on your own each month.
There are different pros and cons to various annuity products and how they let you use this wellness benefit. Don’t be afraid to ask any questions that are on your mind and take your time to decide about what annuity may be right for you.
Also, the annuity should ideally do more than just give you long-term care protection.
You might tap the annuity for a guaranteed income stream, use it to protect crucial savings from market risk, or have it pass on a death benefit to heirs. No matter what, the annuity needs to solve specific gaps in your retirement plan, just as all other financial products should do.
One Final Thought
Remember, one advantage is that annuities with this benefit can let someone keep their money if they don’t end up needing this care. If you buy a long-term care insurance policy and then end up not needing this type of care, then the premiums that you paid might be gone.