Long-Term Care Riders for Annuities

Long-term care riders are insurance to add to your annuity contract, a financial hedge to help you pay for long-term health care. When you add this rider, a part of your premiums gets put into a separate long-term care account. You can withdraw a set amount of money from the account each year to pay for either in-home aid or assisted living residence fees. If you die before using the money, it passes to your heirs.

A long-term care rider can be a good idea if you don’t have any other long-term health insurance.

Long-term care riders separate your product into two parts, the annuity and your long-term care account. Each receives a designated part of your premiums. Just like your annuity funds, your long-term care funds will accrue interest over time, growing steadily until you need the money.

Your annuity provider will disburse some money to you, if you meet certain conditions. In most cases, you must be unable to perform one or more daily activities by yourself, such as bathing and getting dressed, for at least six months. You can use the money you receive to pay for nursing home care or in-home care.

You’ll receive money from your rider until you no longer need it, exhaust the account or surpass the rider’s maximum benefit period. In most cases, the rider’s payouts are not taxed.

Not all types of annuities offer long-term care riders. Those that do may have different conditions for triggering benefits or have other limitations. Consult a financial advisor before buying any kind of annuity or rider, including a long-term care annuity.

You may find benefits to adding a long-term care rider to your annuity. Your financial advisor can help you understand how an annuity rider could fit into your retirement plan and whether purchasing one makes sense. The benefits outlined below are the most prominent reasons for doing so.

There are drawbacks to buying a long-term care rider. Discuss them with your financial advisor to confirm whether adding the rider is the right choice for you.

There’s a lot to consider when deciding which long-term care annuity rider works best for you. Aside from the size of the yearly benefit, you’ll want to consider other factors, such as the annuity provider’s financial stability.

The rider’s terms and conditions are equally important. Read the coverage details and pay special attention to the conditions that activate the benefits — and how long benefits last. Weigh these limitations against the rider’s cost to determine if it offers an acceptable amount of coverage for your budget. Talk to your financial advisor to confirm you’re buying a smart investment.

Like any other expense, long-term care expenses are subject to inflation. Without some form of inflation protection, your long-term care rider’s payouts may not pay for enough meaningful care when you need it.

Many long-term care riders address this issue by incorporating automatic compounding benefit increases into their structure. For example, a rider with this type of protection might increase potential payouts by a certain percentage each year. Look for a policy and rider that offers similar benefits. They may cost more than unprotected options, but will ensure your long-term care coverage still is useful over the years.