LTC and Other Riders

LTC and Other Riders.

What are...
Riders & Enhanced Benefits

Long-Term-Care Rider (LTC coverage)
One of the things that can discourage people from buying long-term-care insurance is the idea of paying a lot of money for a policy that with any luck they will never have to use. Traditionally, long-term-care insurance is particularly expensive and frequently, its purchase comes at a time when people are facing retirement and looking for ways to cut back.

One way to avoid spending a lot of money directly on an LTC policy while still getting its benefits is to buy an annuity policy with a long-term-care rider.

The underwriting is usually less stringent than for a conventional long-term care policy. Most companies, for example, ask applicants whether they have or have had some serious illnesses like cancer, but do not require a physical. Less serious ailments will not affect insurability at all. People aged 80 and over may even be able to buy these policies.

Most policies have few restrictions on how you use the money. Once you meet the qualifications, usually the inability to manage two of the six activities of daily living (eating, bathing, dressing, toileting, transferring and maintaining continence, or cognitive impairment), how you spend your money is up to you. You can pay a neighbor or a family member to help or use the tax-free payments to augment other money that you have available.

Lifetime Income Rider
A lifetime income rider enables the annuity owner to receive an amount regardless of the annuities underlying subaccounts performances, without having to give up principal access. For most contracts, the amount of income received is typically between 4-7% of the amount in its income account. The income account is calculated with the premium amount paid and any interest or bonus monies added to the accounts balance.

Enhanced Death Benefit
This benefit, will completely depend on the structure of the annuity contract and any additional riders that might be attached to that contract. At a basic level, the death value can be the initial deposit amount, less any withdrawals and market performance.

An enhanced death benefit refers to a death benefit that exceeds the guaranteed minimum death benefit paid. This is created by locking-in investment gains on a periodic basis. Most of the bigger companies provide somewhat of an enhanced death benefit. On certain contracts, they can offer riders that provide a full return of principal to the beneficiaries even after withdrawals and market adjustments have been added to the mix. This can serve as a fixed-income alternative that has market upside and lifetime income. Also, there are riders that can simply grow the death benefit by a certain percentage on an annual basis. This can be used for estate planning purposes for people who might not be insurable.

Some Facts About Fixed Indexed Annuities (FIA)

What is an indexed annuity?
An indexed annuity is a contract issued and guaranteed by an insurance company. You invest an amount of money (premium) in return for protection against down markets; the potential for a % of investment growth, linked to an index (e.g., the S&P 500® Index); and an option for a guaranteed level of lifetime income, LTC and (or) enhanced death benefits, through optional riders.

Do Annuities Offer Guarantees?
Fixed index annuities also offer a high degree of safety. Your premium and earnings are guaranteed by the issuing insurance company. Insurance companies are legally required to set aside assets (known as “reserves”) to cover potential claims made by their policyholders.

What kind of funds can I use to purchase an FIA?
Annuities can also be purchased using qualified monies from rollovers or transfers of a tax-qualified plan (i.e. IRA), or with a lump sum distribution from a 401k or pension plan. They can also can be purchased with non-qualified monies such as “cash” from other liquid accounts or investments.

What About Taxes and Interest?
Annuity holdersa gain compounded earnings while deferring income taxes. Earnings within an annuity contract are tax-deferred. This means you don’t pay income taxes on the earnings until you withdraw gains from your account. Investors with investments currently allocated as “cash” should consider annuities for their tax deferral benefits. Over time, tax-deferred compounding may produce a greater overall return than other non-qualified investments.