A hybrid annuity is the perfect combination retirement resource for anyone who is worried about the potential inability to pay for long term care services if they are eventually needed. More than two-thirds of all retirement-age individuals will require some kind of long term care services, services that cost more than $75,000 per year on average and are often excluded from insurance coverage or quickly exceed insurance limits. Medicare typically does not pay long term care expenses and Medicaid has painfully strict spend down requirements that could leave your family destitute should you expect their assistance paying for your long term care.
Hybrid Annuity Definition
A hybrid annuity can help resolve the concerns regarding long term care needs while still providing a valuable investment and retirement product for consumers. The hybrid annuity is an annuity contract that has a long term care provision. While hybrid annuity products have not always provided the level of protection to adequately meet long term care needs, the newest line of hybrid annuities offers significant improvements in coverage.
The hybrid annuity works similarly to a regular annuity, in that the consumer pays into the annuity and accumulates funds tax-free over a specified period of time. If the person does not end up needing long term care, then the annuity pays out as normal over the course of the payout period. If, however, the annuitant ends up needing long term care, a hybrid annuity is designed to provide an accelerated payout that will cover the cost of the long term care for a specific period of time. In addition to an accelerated payout, hybrid annuities often come with long term care riders that provide an additional period of coverage beyond that specified in the hybrid annuity.
Hybrid Annuity Example
The benefit of a hybrid annuity goes beyond simple peace of mind. There are distinct financial advantages to a hybrid annuity should you ever require long term care. Take this hybrid annuity example for illustrative purposes; if you have an accumulated value in an annuity of $250,000 and end up requiring long term care, you will be able to access the entire value of the annuity over the course of two years at the rate of 1/730th of the value per day (approximately $342). Yet with a standard hybrid annuity, in addition to having access to the full $250,000 accumulated value, you would also have a long term care rider on the contract that would provide you four more years of long term coverage, or an additional $500,000 of coverage, essentially tripling the value of your annuity.
Hybrid annuity contracts provide you with peace of mind for a variety of long term care options; including home health care, adult day care, assisted living and nursing home care, and hospice care. Many of the new hybrid annuity policies also include coverage for respite and caregiver training. One thing to keep in mind is that the additional payments that are made under the long term care rider may be considered taxable income, so always seek the advice of your tax advisor or financial planner prior to choosing a product.
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