Long-term care annuities

Immediate long-term care annuity

For a single premium payment you make to an insurance company, you receive a specified monthly income. It is available to you without regard to your health, so if you don't qualify for long-term care insurance because of age or poor health or if you are already receiving long-term care, you can still purchase an annuity.

The single premium payment is converted to a monthly income stream that is guaranteed either for a specified period of time or for the life of the individual receiving the payments. The payout schedule varies based on the amount of the initial premium, your age, and gender. Generally, because of their longer life expectancy, females receive a smaller monthly payment over a longer period of time than do males of the same age.

Important considerations

• The annuity amount you receive may not be enough to pay for your long-term care expenses.
• Inflation may make the monthly income you receive from the annuity less than what you need.
• The tax implications of an annuity are complicated. Consult with a tax professional before purchasing one.

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Deferred long-term care annuity

This type of annuity is available to individuals up to age 85. Similar to other annuities, for a single premium payment, you receive a stream of monthly income. In this case, the amount you receive depends upon your health.

The annuity creates two funds: one for long-term care expenses and another separate cash fund to be used however you desire. The long-term care fund can be accessed immediately, while access to the cash portion is deferred and more limited over time. The rules of the annuity define when and how much you can withdraw each month from the long-term care fund, and how much you can withdraw on an annual basis from the cash fund.

To qualify for this type of annuity, there are seven broad health criteria. However, most people will qualify even if they do not qualify for long-term care insurance.

Important considerations

• If the long-term care fund is not used, it can be passed on to your heirs.
• The annuity may not be enough to pay for your long-term care expenses.
• Inflation may make the monthly income you receive from the annuity less than what you need.
• The long-term care portion of the annuity does not satisfy the requirements for a tax-qualified long-term care policy, so there is a risk of being taxed on the money from the fund that is used for your long-term care expenses.
• The tax implications of an annuity are complicated. Consult with a tax professional before purchasing one.

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