A brand new annuity with LTC benefitsArticle added by Roccy DeFrancesco on December 2, 2010
Roccy Defrancesco

Roccy DeFrancesco

MI

Joined: May 24, 2006

Anyone who reads my articles knows that I’m a huge advocate of using single premium life (SPL) insurance policies rather than having money sitting in CDs and money market accounts.

Why SPL instead of CDs and money market accounts?
    1. The policy is 100 percent liquid (some companies)
    2. SPL policies provide a much more sizable death benefit that will pass outside of the probate process
    3. Most importantly, because SPL policies provide insureds with a much needed long term care (LTC) benefit — most people should purchase LTC insurance, but few actually do so.
The new annuity with an LTC benefit
One company just came out with a brand new single premium annuity designed to offer clients a significant LTC benefit.

Comparing the new LTC annuity to SPL
Let’s compare this new LTC annuity to the number one SPL policy in the market and CDs. Assume the client is a 65-year-old male who would be standard for underwriting. Let's also assume there is a one-time premium of $100,000 into either the SPL policy, the new annuity with LTC benefit, and into CDs. How to do the benefits stack up?

Maximum Annual LTC BenefitDeath Benefit
SPL at age 70
$71,544 (payable for 6 years)
$178,410
SPL at age 80
$71,544 (payable for 6 years)
$144,281
Annuity at age 70
$33,788 (payable for 9 years)
$105,116
Annuity at age 80
$51,314 (payable for 6 years)
$117,164
CD at age 70
$0
$109,344
CD at age 80
$0
$126,899

I assumed a net 1.5 percent rate of return on the CD. The return in the annuity is assumed to be guaranteed at 2 percent for the life of the annuity. In year seven, the 2 percent return will change to the current fixed annuity crediting rate that should be slightly more than the CD rates at that time. The reason the death benefit — which is also the same as the surrender value in year eight and beyond — is lower than the CD value is because there is a rider fee to the LTC annuity.
SPL is still the best way to go, but not everyone can qualify.

The annuity with LTC benefits worked out very well as compared to CDs. If the example client needed an LTC policy at age 80 —and chances are more than 50 percent that at some point in every client’s life, there will be a need for LTC — he/she would receive an LTC benefit equaling $307,844.

What would the client have to do if his/her money was in a CD? Liquidate the CD to pay for long term care. The additional benefit with the LTC annuity would equal $307,844 - $126,899 = $180,895.

The 1035 market for this new LTC annuity is huge.

Think about it. How many clients have multi-year guaranteed annuities (MYGAs) with crediting rates that are renewing at the minimum — 2 percent or less for most of them)? Would a client rather keep his/her money in a pathetic MYGA earning 2 percent or 1035 exchange that money to an annuity with the same rate of return but with an LTC benefit equaling three times the account value?

It’s a no-brainer sale and great for clients who statistically will need LTC assistance at some time in their lives.

For example: A 65-year-old woman has $100K in a MYGA renewing at the guaranteed rate of 2 percent or less that can be moved to the new LTC annuity. The client gets the same 2 percent return plus a $300,000 LTC benefit. She was “self-insuring” for LTC costs before with only one-third of the amount of assets available to pay for her inevitable LTC expenses. 1035 exchanging her current annuity for the new LTC annuity is a very easy decision to make.

Summary
If you are lucky enough to get your senior clients underwritten by SPL policies, that’s the best way to go. However, because most of your clients will be declined, allowing them to fund an annuity that has virtually no underwriting where the LTC benefit is equal to three times the premium paid (or three times the account balance as that slowly rises) is tremendous.

If you want to capture millions in 1035 rollover money from MYGAs, you need to learn about this product and offer it to clients who can benefit from the enhanced LTC benefit from the new LTC annuity.
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