The Immediate Annuity Solution to Long-Term Care
I met a woman in her early 70's. She expressed interest in long
term care coverage that would cost about $1000 annually. She said she
already felt poor and did not want to spend any money on insurance. I noticed
however that among her many assets was a small $10,000 annuity, I asked her
if she ever withdrew any money from it. She said no and I pointed out the
following idea:
Annuitize (take monthly payments) the annuity for life. Such an annuity would
generate a lifetime payout of approximately $1,000 annually—just the
amount needed to get important long term care coverage. This is money she is
not using anyway so it has no effect on her spending or pocket book. By committing
this small asset, this $10,000 immediate annuity, it will fund her long term
care premiums for life (assuming level premiums).
Note that there will be some taxes on the immediate annuity income which is
affected by age and basis in the contract. Also note that the long term care
premiums may not stay level as most every long term care company has increased
premiums over time.
Therefore, it would be wise, using the above example, to start with a $15,000
immediate annuity as it will generate sufficient annual income to cover taxes
and potential long term care premium increases.
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