Not having enough money to pay for long term care is the greatest fear Americans have about aging, according to a recent consumer survey conducted by Genworth.1 Even so, only one in five has taken any action to prepare for the financial challenges of aging.
That sense of complacency, as financial professionals know only too well, can have devastating consequences.
When families who haven’t planned ahead for long term care are suddenly faced with a loved one needing immediate care, the financial implications can come as a shock—particularly when they realize that Medicare doesn’t cover the care they need or they have too many assets to qualify for Medicaid.
Although not as many funding options exist at that point, there is a solution that financial professionals should be aware of that uniquely addresses the long term care financing needs of older people with adverse health conditions.
It’s called a medically underwritten single premium annuity (SPIA) and converts assets into guaranteed, monthly income that begins immediately and is paid for the rest of the care recipient’s life. The income can be used for any purpose, including long term care, medical or living expenses.
The medically underwritten SPIA is designed for older Americans in poor health. In fact, precisely because it is medically underwritten, this type of SPIA may generate a larger monthly payment than a traditional SPIA if the care recipient is less healthy and needs care at the time he or she purchases the SPIA. The purpose of the underwriting is not to exclude anyone, but rather to determine the amount of income the care recipient will receive based on his or her age and health.
Depending on the carrier, the underwriting process may include a review of medical records and an in-person nurse assessment of the applicant’s health. Lab tests are not always required. As a consumer protection safeguard, a carrier may require a power of attorney to purchase the product if there is any evidence of cognitive impairment.
Although a medically underwritten SPIA can be used to pay for care, it should not be confused with a long term care insurance product. There are several key differences between a medically underwritten SPIA and long term care insurance. First of all, the guaranteed income from the SPIA is not tied to activities of daily living (ADLs) as is the case with a long term care insurance policy. In addition, the SPIA requires no claims to file and no on-going health evaluations. And, unlike long term care insurance which must be used to pay for care, the income from a medically underwritten SPIA can be used for any purpose.
It is also important to understand that medically underwritten SPIAs are not investment products and do not require any additional fees or charges.
The medically underwritten SPIA may include optional benefits, including enhanced death benefits or cost-of-living adjustments.* Death benefit options are designed to protect a portion of the premium paid into the annuity upon the death of the care recipient. A cost of living adjustment increases the income payment each year to help offset the potential increase in future living expenses which could occur, for example, if the recipient requires more intensive care and must move to a more expensive care facility.
In addition to providing care recipients a guaranteed source of income they cannot outlive, a medically underwritten SPIA can help alleviate the financial strain of caregiving on families. Family members can, in fact, pool their resources to pay for the single premium needed to purchase the medically underwritten SPIA.
While a medically underwritten SPIA cannot solve all of the long term care challenges our country faces, it does help provide a potential solution for a segment of consumers who need care now but have limited funding options.
It’s an innovative use of annuities and underwriting that helps people who are afraid of outliving their savings extend their assets. It creates a guaranteed stream of income, that can be used for any purpose, for as long as they live.
*Optional features, such as an enhanced death benefit or cost of living adjustment increase may be available and may require additional premium to provide the same guaranteed initial monthly income payment.
Features and benefits may vary by insurance carrier, state or market. All guarantees are based on the claims-paying ability of the issuing insurance company. Consult the annuity contract for a detailed description of benefits, limitations and restrictions for each individual product. The contract terms and provisions will prevail.
The purchase of this type of product may impact Medicaid benefit eligibility or other requirements for Medicaid benefits or any other state or federal government assistance.
Life income provides guaranteed monthly payments during the lifetime of the annuitant, no matter how long he or she lives. Monthly income payments will generally stop upon the death of the annuitant and, therefore, the total amount of payments may be significantly less than the premium paid for the annuity. There may be no minimum amount of guaranteed income payments or death benefit associated with the product selected.
Genworth Long Term Care Omnibus Study, September 2017.
is senior vice president and chief commercial officer for Genworth's U.S. Life Insurance Division. Nisenson can be reached via email at email@example.com.