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Jim Lentini: Combination LTCs and annuities

Posted: November 23, 2009 10:43 p.m.
Updated: November 24, 2009 4:55 a.m.
Insurance companies have been actively researching and/or developing combination annuity and long-term care products for introduction once the Pension Protection Act takes effect on Jan. 1, 2010. The facts are that long-term care (LTC) services are in need and are incontrovertible.

The number of Americans age 55 and over will by 2010 be more than 55 million, and by 2020, reach more than 71 million. These Americans are living longer and incurring more claims, especially related to infirmity and old age.

The cost of claims for LTC is going up as well. In 2008, the national average cost of a semi-private room was about $6,000 per month, with enormous geographical variations, especially in urban regions.

These figures are from research according to two of the major carriers offering LTC insurance and annuities.

Some of the key issues for the companies that choose to offer these combination plans are:

n Lower cost - The new combination plans will be less costly than a stand-alone product that provides a similar benefit income stream. This is primarily because the insured will be using his or her money as co-pay for the benefits for LTC.

n No more "use it or lose it" - Unlike current LTC plans, if the owner doesn't become chronically ill and thus doesn't need to draw on the product's LTC benefits, the owner gets to keep the dollars in the annuity.

n Gains avoid tax - Annuity dollars paid out for LTC benefits are not taxable, even if the contract dollars represent gain.

n Simplified underwriting - Because the LTC rider is a part of an annuity, the underwriting will be more liberal than a stand-alone LTC policy.

LTC policy sales have not increased and have not kept up with the rising need as noted above over the last few years. This has been due to rate increases for existing policyholders, the relative high price of existing stand-alone products, and customer resistance to the use-it-or-lose-it phenomenon and underwriting that is difficult and takes time for issue.

This is why the combination plans that will be offered will be an opportunity to provide the needed protection for the growing senior population and its LTC needs. This is especially true with current legislation pending that will reduce many benefits that seniors rely on for their growing medical needs and financial security.

Since there are many variables with long-term care and annuities, be sure to discuss your options and coverage with your financial advisor so you can design a plan that meets your goals now and your future financial plans.

Jim Lentini, CLU, ChFC, IAR is president of Lentini Insurance & Investments, Inc. His column reflects his own views and not necessarily those of The Signal.


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