Shawn Davis

Like many agents, you’ve received “that” call.  Your client, their spouse or their parents are facing a need for long term care and he or she is desperately looking to you for a solution to help pay for it.  Because the care recipient can no longer qualify for long term care insurance or a combo product, you’ve had to answer, regretfully, that there’s little you can do for them. 

Except, there is. 

A medically underwritten single premium immediate annuity (SPIA) is one of the few insurance solutions where it’s more advantageous for the applicant to be less healthy and in immediate need of care, and it can make a finite amount of money last a lifetime—a perfect combination of benefits for filling gaps in long term care funding.  

It’s a great solution to add to your existing offerings, particularly for clients and their parents who:

• Are in declining health;
• Have not planned ahead for how they will pay for long term care expenses and worry about outliving their savings;
• Could not qualify for long term care insurance because of health issues and suddenly find themselves in need of care.

How it Works
A medically underwritten SPIA converts assets into guaranteed, monthly income that begins immediately and is paid for the rest of the annuitant’s (care recipient’s) life.  The income can be used for any purpose, including care, medical or living expenses. 

Because they are medically underwritten, these types of SPIAs typically generate a larger monthly payment than a traditional SPIA if the care recipient is less healthy and needs care at the time of purchase.  The process works the opposite of life insurance in that the less healthy you are, the higher the monthly payout you receive.  

The purpose of 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 status. Lab tests may not be required. 

A medically underwritten SPIA is not long term care insurance.  It is quite different in several important aspects:  The guaranteed income is not tied to activities of daily living (ADLs), so there are no benefit triggers, or claims to file, and no ongoing health evaluations required.  And, unlike long term care insurance, the income can be used for any purpose.  

Medically underwritten SPIAs may offer optional benefits, including enhanced death benefits or cost-of-living adjustments.  A cost of living adjustment increases the income payment each year to help offset the potential increase in future living expenses. Death benefit options are designed to protect a portion of the premium paid into the annuity, for a defined period of time, upon the death of the care recipient.  

Because of the age and health conditions of the care recipients, carriers have built consumer safeguards into the application process.  For example, if there is any evidence of cognitive impairment, a carrier may require a power of attorney to purchase the product. Additionally, it is often encouraged that family members are engaged in the sales process as well.

It’s also important to note that medically underwritten SPIAs are not investment products.  Typically there are no additional or separate fees or charges.

When You Should Sell It
This product is designed for older individuals who have adverse health conditions and are seeking a source of income to help offset the potentially significant cost of care—now and into the future.  

For older and less healthy individuals, this product will likely produce greater income. If your client isn’t expected to live as long as the average person of his/her age, then his/her annuity payout per dollar invested in the medically underwritten SPIA will likely be higher than for other clients his/her age exhibiting no extraordinary medical conditions.

So, review your book of business.  Do you have clients receiving care or in declining health who are worried about outliving their assets?  Do you have clients whose parents are receiving care?  If so, this may be a potential solution for helping to bridge any gaps in funding.

Why You Should Sell It
If you are not offering a medically underwritten SPIA you have an underserved market, especially considering how few people have adequately planned for how they will pay for long term care.      

Thanks to advances in medicine we are living longer than ever.  With an extended life expectancy comes the reality that your clients may face a care event, one in which they are in need of care themselves or caring for others.  

Relief for Families
Having enough income during retirement is a challenge and concern for most retirees, but even the best-laid plans may not be enough to cover unexpected long term care expenses.  That’s often when some of the financial burden of caregiving falls on families.

In fact, families are spending an average of $6,954 per year on out-of-pocket costs related to caregiving according to an AARP study.¹

When families are suddenly faced with a parent, grandparent or spouse needing immediate care the financial implications can come as a shock, particularly when they realize that their loved ones’ health insurance or Medicare does not cover the costs of the care they need.    

With a medically underwritten SPIA, family members can pool their resources to pay for the single premium needed to purchase the medically underwritten SPIA.

By providing care recipients a guaranteed source of income that they cannot outlive, a medically underwritten SPIA gives care recipients’ families a sense of security, helping to alleviate the financial strain of caregiving.  

A Lifetime Solution
So, when you get that call from clients asking if there is anything you can do now to help them pay for long term care or other expenses, you now know that there is a potential solution they should know about.  

A medically underwritten SPIA uniquely addresses the long term care financing needs of older Americans in ill health, particularly those who are seeking a source of income to help offset the potentially significant cost of care now and into the future.  

And by recommending a medically underwritten SPIA to help pay for your client’s care (and other expenses), a happy by-product may be that you can help fulfill other aspects of their estate planning goals by preserving some of their other assets for their heirs.

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.

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.

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 number of guaranteed income payments associated with the product selected.

Reference:

1. Family Caregiving and Out-of-Pocket Costs: 2016 Report, AARP, 2016, https://www.aarp.org/content/dam/aarp/research/surveys_statistics/ltc/2016/family-caregiving-costs-fact-sheet.doi.10.26419%252Fres.00138.002.pdf.