It’s estimated that 50% to 60% of 65-year-olds will require some form of long-term care at some point in their lives, often in 80s or later. Physician John Lim recommends considering an alternative to self-funding (often followed by Medicaid), traditional long term care insurance (LTCI), or hybrid policies (afford payouts even if you don’t need LTC). (Check out links to these options in this searchable blog.)
Lim recommends deferred income annuities (DIAs), also known as longevity insurance or—if purchased with retirement account money—as a qualified longevity annuity contract. DIAs provide protection against outliving your assets, regardless of whether you need to pay for long term care or not. DIAs are also known as Qualified Longevity Annuity Contracts.
A DIA is a basic income annuity with one quirk: The annuity doesn’t pay out immediately, but only after a delay. For example, you could buy a DIA at age 50 or 60. Similar to a traditional income annuity, you would pay an insurance company a onetime lump-sum payment in return for a lifetime income. The quirk is that the income stream wouldn’t begin until late in life, perhaps age 75 or 80. Age 80 is when mental and physical problems are likely to arise, requiring care.
“Because the annuity’s payout is deferred until age 75, mortality credits—the secret sauce of annuities—are maximized. Put bluntly, those who die before 75 don’t receive a cent, which leaves far more generous payouts for those who live longer than 75. These “survivors” are precisely the ones who face the greatest financial risks from long-term care and longevity.” IF you need care before the DIA kicks in you can pay out of your Social Security and assets, confident that the DIA is available. Of course, there is the option that one dies before the DIA payout begins but living past one’s expiration date is much more of a financial hazard.
Unlike insurance policies, income annuities (DIAs) don’t require a medical exam which might preclude one’s eligibility for buying LTCI.
Many mid-life adults are faced with caring for and paying for elderly parents. A DIA could be the answer.
Check this blog’s posts on the basics of annuities to fully understand the concept.
Source: Financial Planning for Women