How annuity ‘doublers’ can help with long-term care
April 21, 2015 by RetireMentors
Worried about the cost of winding up in a nursing home or requiring professional at-home care during your golden years?
Long-term-care insurance has become increasingly more expensive, driving many seniors out of the market. The good news is that annuities with “nursing home doublers” are now available that can help close the insurance gap. Depending on the annuity, these double payments last for up to five years or until an annuity with the doubler drains its cash balance. A number of doublers are included in an annuity at no cost to the contract holder.
The first “nursinghome doubler” feature was introduced in 2012 by Security Benefit — in its Security Income Annuity. Since then, seven additional companies have begun offering the benefit: Allianz Life Insurance Company, Fidelity & Guaranty Life, North American Insurance Company,American Equity Investment Life Holding Company, and Athene Annuity and Life Assurance Company. Lincoln Life and Annuity Company, the latest doubler entrant, joined the bandwagon in February.
The LTC crisis helped spark this development. Insurance companies mispriced LTC insurance. They didn’t expect interest rates to fall as low as they have and to stay down so long. They also misjudged the lifespan of policyholders entering nursing homes. On average, people remain there three years, one third longer than expected, obviously costing insurers materially more.
As a result, only about a dozen companies are still selling long-term-care insurance policies, down from about 100 a decade ago. And many of the remaining players keep increasing rates. Genworth Financial, for example, has raised rates three times since the late 1990s, including a 50 percent-plus hike in 2012. Other purveyors hiked rates as much as 75% this year or last year. Policyholders seldom have the option of switching to another insurance carrier because they will charge new customers even more.
Particularly noteworthy is the low cost of nursing home doublers.
Take, for example, the North American Index Annuity, which is offered with or without the nursing homedoubler. If a 60-year-old man invests $400,000 in this annuity with the nursinghome doubler — which it calls the Confinement Rider — and waits five years to take withdrawals, the annuity will grow to $554,497 in value and pay a 5% annual income stream, or $2,310 a month. The same policy without the Confinement Rider would pay exactly the same but the account value of the policy — what a beneficiary would inherit — would be $2,000 higher over five years; obviously a very small difference.
People who already have LTC insurance or sufficient assets to shield them from a possible nursing home stay don’t particularly care about nursing home doublers. But those without LTC insurance and of lesser financial means tend to buy annuities with the doubler as long as they’re not sacrificing substantial income in the process.
In choosing an annuity with the doubler, bear in mind that some insurance companies offer the doubler for both a nursing home stay and at-home care, while others pay the doubler only if confined to a nursing home. And in joint annuities with a doubler, only one spouse is entitled to the benefit.
