Skyrocketing healthcare costs. People living longer lives. And a population that owns annuities, but usually doesn’t turn them into an income stream.
There’s a huge opportunity in our industry right now. And we aren’t really talking about it.
That opportunity? Hybrid long-term care (LTC) annuities.
If you’re not familiar, a hybrid LTC annuity can stem from an existing, non-qualified annuity that creates an LTC plan; offering the potential for significant tax advantages, LTC benefits, and even death benefits.
Let’s explore this opportunity for you and your clients.
The Annuity Marketplace
As you probably know, most clients tend to buy annuities due to the tax-deferral, or because they can become an attractive income rider later on. On the other hand, many clients that own annuities have no intention to turn them into an income stream.
Don’t believe it? According to a Gallup survey of non-qualified annuity owners:
- 73% intend to use their annuity as an emergency fund in the case of a catastrophic illness or for nursing home care
- 79% intend to use their annuity as a financial resource to avoid being a financial burden on their children
Why Consider Hybrid LTC Annuities?
Sounds like a pretty nice setup to turn those annuities in LTC coverage. The Gallup survey results alone argue a case for hybrid LTC annuity policies.
But, factor in these health- and LTC-related statistics, and the hybrid LTC annuity really distinguishes itself:
- 33% of seniors die with Alzheimer’s disease
- In less than 15 years, a memory care unit will cost about $175,000 each year
- More than 6 million Americans had Alzheimer’s disease in 2017—and each day 10,000 baby boomers turn 65
- 90% of Americans agree that financial advisors should discuss LTC care plans with clients, but only 14% have talked to an advisor about how they’d pay for LTC if they needed it
Use Hybrid Long-Term Care to Engage Your Book of Business
Here comes the best part.
Now, you can reach out to re-establish yourself throughout your book of business using this hybrid LTC annuity. In theory, income that your clients won’t outlive is massively important in retirement, right? It’s critical to have contingency plans in place in the event that your clients’ income goes down, or their expenses, up.
The biggest and most concerning retirement cost is extended health care.vi And, without any additional income to counteract these expenses, the consequences put on your clients and their families can potentially be disastrous.
Two Ways to Offset LTC Expenses
Funding for extended care can be a hefty expense; and one that many of your clients may not be willing to pay. It all depends on the route you take to get that funding. Here are two main ways:
- Buy a traditional LTC insurance policy. This route will require your clients to pay hundreds of dollars each month now, only to possibly receive benefits later if they need care.
- Convert a current, non-qualified annuity to create a tax-advantaged LTC plan. This hybrid LTC annuity is payable for their entire lifetime, and provides a death benefit if needed. Sounds like the more useful offer, don’t you think?
The hybrid LTC annuity may sound too good to be true, but thanks to the Pension Protection Act (PPA) that went into effect in 2006, it’s a real option.
The PPA allows any non-qualified annuity to move from tax-deferred to tax-free when used for LTC insurance. Most likely, the annuity being used is your clients’ “rainy day fund” and it’s not going anywhere. Essentially, it’s a “dead annuity”. So, why not make it live again?
Now, you have a compelling and suitable reason to move this annuity to a better spot and be compensated for creating this LTC solution.