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Using an Annuity to Pay for Long-Term Care Needs

Using an Annuity to Pay for Long-Term Care Needs

It’s no secret that today, people are living longer than they have at any other time in history. In fact, according to LIMRA, a worldwide association of insurance and financial services companies, retirees and retiree couples could live well into their 90s – and possibly even beyond.

For example, based on LIMRA’s research, approximately half of retiree couples are likely to have one spouse that will live to age 90. One in four may have a spouse that will live to age 94. With excellent health status, 25% of retirees will live to age 97, and in 1 out of 8 retiree couples, either or both of the spouses will live to celebrate their 100th birthday.

But, even though celebrating more birthdays means that people can have the opportunity to travel more, spend additional time with loved ones, and do more things that they have always wanted to do, it also means that additional income will be needed to pay for more years of living expenses. In fact now, it is not unheard of to spend 20 or more years in retirement – long past when your employer’s paycheck stops.

That means that income must somehow be replaced – and this income will also need to pay for things other than just your basic living expenses. For instance, as people age, certain costs, such as health care, tend to rise. Likewise, the potential need for other services such as long-term care will also become more probable.

Probability of a Long-Term Care Need

According to the U.S. Department of Health and Human Services, roughly 70 percent of people who are turning age 65 can expect to use at least some type of long-term care services during their lifetimes.

There are many different factors that can play a role in how much care you may need, as well as how long you may need it. These criteria can include the following:

  • Age – Age is certainly one of the biggest factors. In this case, the older a person is, the more likely he or she is to require long-term care services.
  • Gender – Gender can also play a part. In this case, because women will typically outlive men by approximately five years on average, they are more likely to require professional long-term care services either from a home health care provider or in a nursing home facility.
  • Living Arrangements – Your actual living arrangements will also factor into your need for professional long-term care services. For example, in this case, if a person lives alone, they are more likely to need a paid caregiver than if they are married or live with a partner or other friend / family member.
  • Health Status / Disability – Your actual health status will be a major factor in your need for long-term care services, as will whether or not you have suffered any type of a disabling condition. As an example, chronic health issues such as high blood pressure and / or diabetes can make a person more susceptible to the need for care later on in life, as can a family history of poor health. Unfortunately, poor diet and exercise habits can also make a person more prone to poor health as they get older. In addition, if someone has suffered from a prior serious illness or accident in the past that has caused a disability, long-term care is likely to be needed. Based on research from the U.S. Department of Health and Human Services, 8% of individuals who are between the ages of 40 and 50 have some disabling condition that may require them to need long-term care services in the future.3

How Much Does Long-Term Care Cost?

The price tag on long-term care expenses can be extremely high. Based on Genworth’s 2015 Cost of Care Survey, the average national median daily rate for a private room in a skilled nursing home in the U.S. in 2015 was $250.4 That equates to more than $91,000 per year.

The cost of home health care is also quite high. Genworth’s survey found the national median hourly rate for both homemaker services and for home health aide services to both be at, on average, $20 per hour.5 So, depending on how many hours of service a person requires, this too can add up.

What Pays for Long-Term Care?

Unfortunately, many people are under the misconception that their regular health insurance plan and / or Medicare will pay for their long-term care needs. This, however, is simply not the case.

While regular health insurance policies will typically pay for services such as hospitalization and doctor visits, as well as possibly a certain amount of prescription medications, these plans do not pay for services such as home health care and care that is received long-term in a skilled nursing home facility.

The same holds true for Medicare benefits. Part A of Medicare may pay for a very short term stay within a skilled nursing home facility – but only after a person qualifies after a 3-day hospital stay – and only for a very short period of time.

For instance, in 2016, in order to qualify for Medicare’s limited skilled nursing home benefits, an individual must:

  • Have Medicare Part A, and have days remaining in his or her benefit period;
  • Have a prior qualifying 3-day hospital stay;
  • Receive prior authorization from their doctor stating that they require daily skilled care given by, or under the direct supervision of, skilled nursing facility staff;
  • Have a medical condition that was either related to their prior hospital stay, or that started while they were in the hospital.6

Even if the individual meets all of the above conditions and can obtain benefits from Medicare for his or her stay in a nursing home, there are many out-of-pocket costs involved. For example, in 2016, the individual would be responsible for paying the following amount out-of-pocket:

  • Days 1 through 20: $0
  • Days 21 through 100: $161 per day in coinsurance
  • Days 101 and beyond: All charges

So, even if a person qualifies for Medicare’s skilled nursing facility coverage, they can still end up paying $12,880 out-of-pocket for days 21 through 100 ($161 per day X 80 days), and then all charges for days 101 and beyond.

What Will Help to Pay for the Costs?

With long-term care needs being likely for so many people in their later years, it is a need that people must plan for. However, the high cost of care could potentially wipe out savings within an extremely short period. With that in mind, then, what is the best way to plan for this financial need?

One way that many people prepare is to purchase long-term care insurance. However, this coverage can be very costly – and, there is the concern of paying for years of premiums and then never using the coverage.

There is a better way to plan for the cost of long-term care – a way that will still provide a monthly amount of income that can be used for any need that the income recipient sees fit, regardless of whether he or she needs long-term care or not. This is through the purchase of an annuity.

An annuity is a financial vehicle that is used, primarily by retirees, that is designed for providing a steady, guaranteed income either for a set amount of time or for the remainder of a person’s life – regardless of how long that may be.

How Can Annuities Be Used for Paying These Expenses

There are a couple of ways in which annuities can be used for paying long-term care expenses. One way is to simply use the income that is paid out of the annuity’s income stream to fund the monthly cost of the long-term care.

Alternatively, there are also annuities on the market today that will allow individuals to purchase the product with a long-term care rider attached. In doing so, the annuity holder could access the annuity’s funds if he or she is confined to a nursing home. Often, even though the annuity holder has accessed a portion of the annuity’s funds, the account balance within the annuity is still continuing to grow.

Depending on the plan that is chosen, there can be other nice advantages, as well, to purchasing this type of an annuity. For example, in many instances, the cost of this type of long-term care coverage will be less than the purchase on a stand-alone long-term care insurance policy. In addition, the annuity holder may also be able to obtain this coverage without the need to go through the process of health insurance underwriting. This can provide an individual who may have certain health issues with a way to obtain financial protection for long-term care needs when they may not have been able to get it from other sources.

How to Obtain Additional Information

To obtain additional information on protecting yourself from the high cost of long-term care with an annuity, it is typically best to work with an independent agency that has access to multiple insurers. That way, you will be able to compare from a number of different options and from there make the determination as to which one will work the best for you and your specific needs and protection goals.

When you’re ready to move forward, we can help. We work with many of the top annuity carriers in the marketplace today, and we can assist you with obtaining all of the important information that you will need. So, just fill out the form on this page to proceed.

If you have any additional questions, we can be reached directly, toll-free, by calling 1-800-376-0824. We want to ensure that you have all of the details that you need before your purchase. So, contact us today – we’re here to help.


  1. The Retirement Income Reference Book. LIMRA. Page 78. Copyright 2012.
  2. U.S. Department of Health and Human Services (www.LongTermCare.gov)
  3. U.S. Department of Health and Human Services (www.LongTermCare.gov)
  4. Genworth 2015 Cost of Care Survey. (https://www.genworth.com/dam/Americas/US/PDFs/Consumer/corporate/130568_040115_gnw.pdf)
  5. Genworth 2015 Cost of Care Survey. (https://www.genworth.com/dam/Americas/US/PDFs/Consumer/corporate/130568_040115_gnw.pdf)
  6. Medicare.gov (https://www.medicare.gov/coverage/skilled-nursing-facility-care.html)

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