How Hybrid Annuities With LTC Work

A hybrid annuity with long-term care (LTC) combines long-term care insurance coverage with the financial benefits of an annuity.  It provides a way to invest your money and receive income, while also ensuring that you have coverage for potential long-term care expenses.

How Hybrid Annuities With LTC Work?

I’ve helped many of my clients with annuities with LTC benefits built into them. They are a great tool! As people age, and with the cost of long-term care rising, it’s crucial to have a financial plan in place to cover all your expenses.

For a complete guide to annuities, check out our article on How Do Annuities Work? to learn about the different types, benefits, and considerations. Check it out after learning about LTC annuities!

Hybrid Annuities With Long-Term Care Explained

Hybrid annuities, also known as long-term care (LTC) annuities, combine the features of annuities with the added protection of long-term care insurance. Essentially, it’s an annuity option that helps you pay for potential long-term care expenses in the future and receive a lifetime income stream.

Important note: The structure of hybrid annuities with LTC benefits can vary, but generally, they involve a lump-sum payment to the insurer in exchange for a guaranteed income stream during retirement and protection against the costs of long-term care. 

The annuity’s LTC coverage is usually triggered when the policyholder cannot perform two or more of the six activities of daily living (ADLs) or when they are diagnosed with a cognitive impairment such as dementia.

Activities Of Daily LivingDescription
1. BathingThe ability to clean oneself, such as washing and bathing in a tub or shower
2. DressingThe ability to put on and take off clothing, including any necessary fasteners such as buttons or zippers
3. EatingThe ability to feed oneself, including the use of utensils or other aids, such as straws or feeding tubes
4. ToiletingThe ability to use the toilet, including getting on and off, as well as cleaning oneself afterward
5. TransferringThe ability to move from one position to another, such as from a bed to a wheelchair, with or without assistance
6. ContinenceThe ability to control bladder and bowel function, including the ability to use and clean any necessary appliances or aids

Advantages Of Hybrid Annuities/Long-Term Care Annuities:

  • Potential of a higher return as the investment grows over time
  • Guaranteed returns or an interest rate that can be locked in for a fixed period
  • LTC benefits not used by the policyholder will pass on to their beneficiaries after they pass away
  • Some hybrid annuities allow for ongoing premium payments that spread out the cost of coverage over time

Compared to traditional long-term care insurance, hybrid annuities may have higher upfront costs but can provide more comprehensive coverage and investment benefits. 

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What Is Long-Term Care?

Long-term care refers to the range of services and support that a person may need as they age, become chronically ill or disabled. Long-term care services may include medical care, personal care, and assistance with activities of daily living such as bathing, dressing, and eating. 

The cost of long-term care services can be substantial and can quickly deplete a person’s life savings, which is why it is essential to plan ahead and consider insurance options.

How A Long-Term Care Annuity Works?

A hybrid annuity with long-term care (LTC) insurance is purchased with either a lump sum or through regular premium payments. The annuity provides you with a stream of income payments for a set period, and the LTC insurance provides coverage in case you need long-term care.

Step 1: Purchase A LTC Annuity

When you purchase a long-term care annuity, you pay a lump sum upfront, similar to a traditional annuity. This initial investment is then used to purchase a deferred annuity, which grows over time through interest and other earnings.

Step 2: Receive Your Payments

At a certain point in the future, you can start receiving regular payments from the annuity, either as a lump sum or in installments. The specific terms of the annuity will dictate how much money you can withdraw for long-term care, and for how long.

If you end up needing long-term care, such as assistance with daily activities like bathing, dressing, and eating, you can access the funds from the annuity to help pay for those expenses. 

If you don’t end up needing long-term care, you can still benefit from the annuity as a form of retirement income. (This is one of the shining benefits of LTC annuities). It’s kind of like having your cake and eating it too!

Plus, unlike traditional long-term care insurance, if you don’t use the funds for long-term care, your investment is not lost: it will still be paid out to your beneficiaries as a death benefit.

The Pros and Cons of Annuities Infographic (Tax-deferred growth, guaranteed income, diversification, fees, restrictions, inflation risk).

Additional Features On Some LTC Annuitiy Policies

  • Inflation protection which makes sure your benefit increases over time to keep up with the rising cost of care
  • Return-of-premium allows you to get back the full amount of the premium you paid if you change your mind and decide to cancel the policy

Can You Triple Your Annuities Value? Tax Free?

One of the significant benefits of a long-term care annuity is the ability to double or triple your investment tax-free. With traditional long-term care insurance, if you never end up needing long-term care, you will not receive any benefits or a return on your investment. 

With a long-term care annuity, you have the potential to receive double or triple your initial investment tax-free, even if you never end up needing long-term care.

Here’s how it works: when you purchase a long-term care annuity, you make an upfront payment to the insurance company. In return, the insurance company promises to pay out a specific amount each month to cover the cost of long-term care services if you ever need them. 

If you never end up needing long-term care, the money you invested in the annuity will still grow over time. When you pass away, your beneficiaries will receive the remaining balance tax-free

Depending on the specific annuity product you choose, you may also have the option to receive your investment back with interest if you decide to cancel the annuity before the end of the term.

This tax-free growth and benefit to beneficiaries makes long-term care annuities an attractive option for those who want to protect their retirement savings while also ensuring they have access to long-term care services if they need them.

Other Benefits

Benefits Of Long-Term Care Hybrid AnnuitiesExplanation
Tax-Free Withdrawals For Long-Term Care ExpensesYou can take out money from the annuity to pay for long-term care without having to pay taxes on it.
Potential Tax-Deferred Growth On The Remaining BalanceAny money you don’t withdraw can keep growing without you having to pay taxes on it until you take it out.
“Return Of Premium” OptionIf you don’t end up needing long-term care, you can get your premium payments back.
Surrender OptionsYou can take out your money early, but there may be charges.
Waiver Of Surrender Charges For Long-Term Care NeedsIf you need long-term care, you may not have to pay charges to take out your money early.

These benefits make long-term care hybrid annuities a good choice for people who want to manage long-term care expenses and have flexibility with their money.

Long-Term Care Annuity Example

Let’s Consider An Example To Illustrate How A Long-Term Care Annuity Works:

Long-Term Care Annuity ExampleExplanation
InvestmentThe individual invests $100,000 in a single premium immediate annuity with a long-term care rider.
Monthly PayoutThe annuity offers a monthly payout of $2,000 for life, but doubles to $4,000 per month for 5 years if the individual needs long-term care.
Long-Term Care BenefitIf the individual needs long-term care, the monthly payout increases to $8,000 per month ($4,000 x 2) for the next 3 years, after which it reverts to the original $2,000 per month for life.

Suppose a 65-year-old individual invests $100,000 in a long-term care annuity that offers a monthly payout of $4,000 for 5 years if they need long-term care. They opt for a single premium immediate annuity with a long-term care rider that provides double the monthly payout if they need long-term care.

If the individual never needs long-term care, they will receive a monthly payout of $2,000 for life. However, if they need long-term care after 2 years, the annuity will start paying a monthly benefit of $8,000 ($4,000 long-term care payout x 2) for the next 3 years, tax-free. After the long-term care period ends, the annuity will revert to the original monthly payout of $2,000 for the rest of the individual’s life.

This example shows how a long-term care annuity offers a way to protect against the risk of needing long-term care while also providing the potential for a guaranteed income stream. 

The combination of long-term care protection and guaranteed income can be particularly appealing for individuals who want to ensure they will have the resources to cover long-term care costs while also providing financial security for their retirement.

Pros And Cons Of Long-Term Care Annuities

Pros Of Long Term Care Annuities

LTC Annuities Offer Several Potential Benefits, Including:

  1. Protection From Long-Term Care Costs: Long-term care annuities provide a source of funding for long-term care costs, which can be expensive and unpredictable.
  1. Tax Benefits: Long-term care annuities offer tax-deferred growth, which means that you don’t have to pay taxes on the gains until you withdraw the money. In addition, if you use the annuity to pay for long-term care, the distributions are tax-free.
  1. Return Of Premium: Some long-term care annuities offer a return of premium feature, which means that if you don’t use the annuity for long-term care, you or your beneficiaries will receive the premium back.
  1. Potential For Higher Returns: Depending on the investment options you choose, long-term care annuities can offer higher returns than traditional long-term care insurance policies.
  1. Flexible Options: Long-term care annuities offer a variety of payment options, including single premium, periodic premium, and flexible premium options.
  1. Estate Planning Benefits: If you don’t use the annuity for long-term care, the remaining balance can be passed on to your heirs as part of your estate.

Cons Of Long-term Care Annuities

While long-term care annuities offer many benefits, there are also some potential drawbacks to consider. Here are some of the cons of long-term care annuities:

  1. High Upfront Costs: Long-term care annuities require a large lump sum payment upfront, which can be difficult for some individuals to afford.
  1. Limited Liquidity: Long-term care annuities are not very liquid, and surrender charges can be significant if you need to withdraw your money early.
  1. Limited Investment Options: With a long-term care annuity, you are limited to the investment options offered by the insurance company, which may not provide the flexibility you desire.
  1. Reduced Death Benefit: If you pass away before needing long-term care, your heirs may receive a reduced death benefit or no benefit at all.
  1. Risk Of Inflation: Long-term care annuities may not keep pace with inflation, which can erode the value of your investment over time.
  1. Long-Term Care Benefit Limitations: The long-term care benefits provided by an annuity may be limited in terms of the duration of the benefit or the amount of benefit paid out.

Long-Term Care Annuity Vs. Long-Term Care Insurance

Long-term care annuities and long-term care insurance are both insurance options that can help individuals plan for the costs associated with long-term care. However, there are some key differences between the two.

Long-Term Care Insurance is a type of insurance policy that is designed to pay for long-term care expenses, such as in-home care, assisted living, and nursing home care. The policyholder pays premiums to the insurance company, and in return, the insurance company pays for covered long-term care expenses.

Long-Term Care Annuity is a type of annuity that combines an investment with long-term care benefits. The policyholder pays a lump sum premium to the insurance company, which is then invested. 

If the policyholder needs long-term care, they can access the investment funds to pay for long-term care expenses. If they do not need long-term care, the investment continues to grow.

One advantage of a long-term care annuity is that it offers a potential source of investment growth, which can help offset the cost of long-term care. 

Another advantage is that if the policyholder does not end up needing long-term care, they can pass on the investment to their heirs as a death benefit.

One disadvantage of a long-term care annuity is that it typically requires a larger upfront investment than long-term care insurance. Additionally, the investment return on a long-term care annuity may not be as high as other types of investments, such as stocks or mutual funds. 

Finally, the long-term care benefits provided by a long-term care annuity may be more limited than those provided by a long-term care insurance policy.

Comparison Of Long-Term Care Insurance And Annuities

Long-term care insurance and annuities are both designed to help you pay for long-term care expenses, but they are structured differently and have different pros and cons.

Long-term care insurance typically provides a daily or monthly benefit amount that you can use to pay for long-term care services, such as nursing home care, assisted living, or home health care. 

You pay premiums to the insurance company in exchange for this coverage, and if you need long-term care, the insurance company will pay out benefits up to the policy limits. If you don’t end up needing long-term care, you won’t receive any benefits and your premiums will be lost.

On the other hand, long-term care annuities are hybrid products that combine long-term care insurance with an annuity. With a long-term care annuity, you deposit a lump sum of money with an insurance company and in return, you receive a guaranteed stream of income for the rest of your life, with a portion of that income designated for long-term care expenses. 

If you need long-term care, you can use this designated portion of your annuity income to pay for it. If you don’t end up needing long-term care, you’ll continue to receive the guaranteed income for the rest of your life, and any remaining funds can be passed on to your beneficiaries when you die.

One advantage of long-term care annuities is that they provide a guaranteed source of income that you can use to pay for long-term care expenses. With long-term care insurance, there is a risk that you’ll pay premiums for years and never end up needing long-term care, resulting in lost premiums. 

Some long-term care annuities offer a death benefit that can provide a return of premium or some level of payout to your beneficiaries if you die before using all of the long-term care benefits.

LTC care annuities typically require a large lump sum deposit, which can be a barrier to entry for some individuals. Additionally, the long-term care benefits provided by the annuity may not be sufficient to cover the full cost of long-term care, especially if you require care for an extended period of time. 

Long-term care insurance policies often offer more flexibility in terms of benefit amount and duration, allowing you to customize your coverage to meet your specific needs.

Long-Term Care Costs And Insurance Options

Long-term care costs can vary widely depending on the level of care needed and the location. It’s important to understand the costs associated with different types of long-term care so that you can plan for these expenses and make an informed decision about insurance options.

There are three main types of long-term care: nursing home care, assisted living facility care, and home health care. Nursing home care is the most expensive, followed by assisted living facility care, and then home health care.

The costs of nursing home care can vary significantly depending on the location, with the average cost in the United States being around $8,000 per month. Assisted living facility care is slightly less expensive, with an average cost of around $4,000 per month. Home health care is the least expensive option, with an average cost of around $4,500 per month.

LTC (Long Term Care) Costs

The cost of long-term care can vary significantly depending on the type of care and where it is received. According to the Genworth Cost of Care Survey, the national median cost for a private room in a nursing home was $105,850 per year in 2021. 

The national median cost for a home health aide was $54,912 per year, and the national median cost for an assisted living facility was $54,000 per year.

These costs can vary widely depending on the location and the level of care required. In some areas, long-term care costs may be significantly higher than the national averages, and in others, they may be lower.

Who Pays For Long-Term Care?

Long-term care can be paid for in a variety of ways, including:

  1. Private Pay: Individuals can pay for long-term care out of their own pockets, using personal savings or other sources of income.
  1. Long-Term Care Insurance: This type of insurance is specifically designed to cover the costs of long-term care, and can be purchased through a variety of insurance companies.
  1. Medicaid: This is a joint federal and state program that provides health care coverage for eligible individuals with low income and limited resources. Medicaid can cover the costs of long-term care for eligible individuals.
  1. Medicare: Medicare is a federal health insurance program that provides coverage for individuals over the age of 65 or with certain disabilities. While Medicare does cover some aspects of long-term care, it does not cover the full costs of long-term care.
  1. Veterans Benefits: The Department of Veterans Affairs offers a variety of benefits and services to eligible veterans, including long-term care services.
  1. Family And Friends: In some cases, family members or friends may provide care for their loved ones at home. This can help reduce the costs of long-term care, but it may not be feasible for everyone.

Medical Underwriting Requirements And Other Considerations

Medical underwriting requirements and other considerations are important factors to keep in mind when considering a long-term care annuity.

Medical underwriting requirements refer to the process of evaluating an individual’s health and medical history to determine their eligibility for long-term care annuities. Insurance providers will typically require applicants to complete a health questionnaire and may also require a medical exam.

Other considerations when evaluating long-term care annuities may include the minimum and maximum age requirements, premium costs, coverage amounts and limits, benefit triggers, and the duration of the annuity.

Long-Term Care Insurance Interview Questions

When applying for long-term care insurance, an insurance company will typically require a medical underwriting process, which may include an interview with the applicant. The following are some common long-term care insurance interview questions:

  1. What is your current age and health status?
  2. What medications are you currently taking?
  3. Have you ever been hospitalized for an illness or condition?
  4. Have you ever been diagnosed with a chronic or serious health condition?
  5. Have you ever received treatment for a mental or emotional health issue?
  6. Have you ever been denied insurance coverage or been charged a higher premium for health reasons?
  7. What is your current occupation and work history?
  8. What is your family medical history?
  9. Do you engage in any high-risk hobbies or activities?
  10. Do you have any plans to travel outside of the country in the near future?
  11. Have you ever smoked or used tobacco products?
  12. Have you ever had a DUI or been convicted of a felony?

It is important to answer these questions truthfully and accurately, as providing false information could result in the denial of coverage or cancellation of the policy.

Medical Underwriting Requirements And Tobacco Use

Medical underwriting is the process used by insurance companies to determine the risk associated with insuring an individual. This is done through a series of health questions and possibly a medical examination. 

Long-term care insurance providers use medical underwriting to evaluate an applicant’s health status and determine if they are eligible for coverage.

One of the factors that is considered in medical underwriting is tobacco use. Smoking and other tobacco use can lead to a variety of health issues that increase the risk of needing long-term care. As a result, tobacco users may have to pay higher premiums for long-term care insurance or may be denied coverage altogether.

Insurance companies may ask questions about an applicant’s tobacco use history, including the frequency and duration of use, as well as any attempts to quit. It is important to answer these questions truthfully, as providing false information can result in denial of coverage.

It is also important to note that medical underwriting requirements can vary by provider and policy. Some providers may require more extensive medical exams or may have stricter underwriting guidelines for certain medical conditions. It is important to compare different policies and providers to find the best fit for your individual needs and health status.

Long-Term Care Riders

A long-term care rider is an additional feature that can be added to an existing life insurance policy, providing the policyholder with a long-term care benefit if needed.

With a long-term care rider, the policyholder can access a portion of their life insurance death benefit while they are still alive, if they require long-term care. The amount that can be accessed depends on the specific terms of the rider and the overall policy.

Next steps for those considering a long-term care rider may include:

  1. Evaluating Insurance Providers: It is important to research and compare insurance providers and their specific offerings to find a long-term care rider that best fits your needs and budget.
  1. Reviewing Policy Terms: Before committing to a policy with a long-term care rider, it is crucial to thoroughly review and understand the specific terms and conditions of the policy, including any exclusions or limitations.
  1. Determining The Appropriate Benefit Amount: Consideration should be given to the potential costs of long-term care and ensuring that the policy’s benefit amount will be sufficient to cover those costs.
  1. Consulting With A Financial Advisor: Seeking guidance from a financial advisor can help to ensure that the purchase of a long-term care rider fits within an individual’s overall financial plan.
  1. Ongoing Review: Once a policy is purchased, it is important to periodically review and reassess the policy’s terms, as well as the individual’s long-term care needs, to ensure that the policy remains appropriate and effective.

Frequently Asked Questions

Does Medicare cover long-term care?

Medicare typically does not cover long-term care expenses, except in limited circumstances. Medicare primarily covers medical expenses, such as doctor visits, hospital stays, and prescription drugs. Long-term care services, such as assistance with activities of daily living, are typically not covered by Medicare.

What is the key determinant of the need for long-term care?

The key determinant of the need for long-term care is the individual’s ability to perform activities of daily living (ADLs) independently. ADLs include tasks such as bathing, dressing, grooming, eating, using the toilet, and transferring in and out of a bed or chair. If an individual is unable to perform two or more ADLs independently, they may require long-term care.

How much does long-term care insurance cost?

The cost of long-term care insurance can vary widely depending on factors such as the individual’s age, health, and desired coverage amount. On average, annual premiums for long-term care insurance can range from a few thousand dollars to tens of thousands of dollars per year. It’s important to shop around and compare quotes from different providers to find a policy that meets your needs and budget.


In conclusion, hybrid long-term care annuities offer a unique combination of long-term care coverage and investment benefits. 

With rising long-term care costs and uncertainty surrounding the future of traditional long-term care insurance, these hybrid annuities can provide peace of mind and financial security for individuals planning for their retirement years.

While these products may not be the right fit for everyone, they can be a valuable solution for those looking to protect their assets and ensure access to quality long-term care services. 

When considering a long-term care annuity, it’s important to do your research, understand the product features and limitations, and consult with a financial advisor or insurance professional to ensure it aligns with your individual needs and goals.

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