One of the biggest concerns most people have when they consider their future retirement is the possible costs for long-term care, which have grown to levels that are out of reach for a majority of Americans.
The median cost for a semi-private room in a nursing home was $8,669 per month in 2024 — $104,000 per year — according to the latest “Cost of Care Study” by Genworth. The median price of an assisted living facility was $5,350 per month, or $64,200 per year.
Many people consider long-term care insurance. However, the cost of a policy has gotten so high that many can’t afford the premiums.
Fortunately, there is another solution: an annuity with a long-term care rider. This hybrid insurance combines a deferred fixed annuity with an LTC rider. The rider can provide additional funds to help with long-term expenses, such as in-home care or assisted living, if needed.
Here are some things to know about annuities with LTC riders.
How they work
If you eventually need long-term care, you can begin receiving payments to help with those expenses. Payments can be made to you monthly or as a lump sum. Your annuity company can either give you funds to use as needed or reimburse you after the fact for LTC expenses you’ve already paid for.
To begin receiving LTC benefits, you first have to meet medical standards that necessitate long-term care. For example, that might mean being diagnosed with a chronic or terminal illness. Examples include Alzheimer’s disease or another degenerative disease that requires round-the-clock care, either in-home or in a nursing facility.
Annuities grow with interest and an LTC annuity can either be fixed or variable. With a fixed annuity, you’re earning a guaranteed rate of return.
This type of annuity is generally considered a safe investment since your returns are predictable. A variable annuity tends to be riskier. But, if the underlying investments perform well, it offers the opportunity to earn higher returns.
If you don’t use the LTC benefits, or don’t use much of them, the remaining annuity value goes to your heirs.
Cost: An LTC rider typically costs between 0.5% and 1% of your annual premium.
Is it for you?
These riders provide the best of both worlds: regular annuity payments to support your retirement income and additional funds to cover long-term care costs if needed.
One significant advantage of this approach is accessibility, particularly if you have existing health issues. Compared to stand-alone LTC insurance, annuities with LTC riders may have more lenient approval requirements.
For instance, if you’ve had a surgery like a hip replacement, obtaining a long-term care annuity might involve fewer hurdles than qualifying for long-term care insurance.
However, it’s important to note that certain conditions, such as Parkinson’s disease, might disqualify you from coverage under either option.
Cost is another factor where LTC annuities may shine. Premiums for long-term care insurance depend on variables like your state of residence, age, gender, marital status, desired payout duration and benefit amounts.
While the cost of an LTC rider is also influenced by your age and health, it can often be a more budget-friendly choice, offering valuable coverage without the potentially higher premiums of stand-alone policies.
On the other hand, you may be expected to make a large upfront premium payment to get covered, which can be made difficult if you don’t have a lot of liquid cash.
Also, the premium for an annuity with this type of rider may also be higher if the insurance company believes you are more likely than average to need long-term care, such as if you have pre-existing conditions.
The takeaway
Annuities with long-term care riders can be an ideal way to help pay for a nursing home should you need one. If you are already considering an annuity and are in good health, this can be a great option.
