Annuities with Long Term Care Riders

This involves one of the most common selling points for an annuity with lifetime withdrawal benefits.  Some annuities with GLWB also offer double the income payments if you need long term care in retirement. I don’t use this as a selling point but many people have been presented with the option and not told about all the details.  We need to explain exactly what it means and make sure you also understand what it is not.  If you are buying an annuity specifically because of this benefit, the last thing you want is to realize years later that the benefit may not be there.  We’ll also give you a quick case study to compare a product with and without the long term care addition.

First of all, it’s not true long term care insurance, just additional taxable income – real long term care is available with annuities but it’s a very specific product with a tradeoff most people don’t like.  We’ll explain that later but first we need to talk about GLWB products. The standard example is that the income will double for five years and then the contract will revert back to the  guaranteed income payment.

Two problems with this: first, the average stay in a LTC facility is two to three years, and second, the additional benefit is not available if the cash value of the contract goes to zero. It’s essentially an accelerated repayment of your own money

When you take income, those payments reduce the cash value over time. Yes the account will also grow a little but not enough to overcome large withdrawals. There is usually no remaining value after about 12 years, which is when you are most likely to need it. The only real way to benefit from this is if you need long term care in the early years of the policy when there is cash available but that’s an absolutely terrible scenario and you don’t really see a financial benefit from it.

Most contracts offer a terminal illness or nursing home waivers automatically, which allows you to avoid surrender charges in times of a medical emergency.  Since long term care precedes death, you would get the same benefit as the additional rider.

Verdict:  Don’t buy it for long term care.  The annuity must be what you want for other reasons like guaranteed lifetime income.  Many contracts happen to have what we call a LTC kicker so it’s already there but you are not likely to benefit from it.  That’s why it comes for free.

Case Study:  One client has an old annuity that was purchased for retirement income.  If she takes the income from the current contract it will pay around $20K per year for life.  If she buys a new contract she can secure more than $28K annually for life.  The catch is that her current contract offers double income for five years if she needs LTC.  If she hits it at the right time that will pay her an additional $100K over five years.  The new contract will pay her an additional $100K in 12.5 years whether she needs LTC or not.  We think it’s the right financial move to take the higher income because it produces more cash flow in the long run, regardless of circumstances.

There are annuities that offer true long term care, as in tax-free payments that act as insurance.  But it doesn’t make sense to use those products for income because it would deplete the care benefit.  A basic example is that you can put $100K into an annuity and automatically receive $300K or more for long term care insurance.  The contract states the entire benefit is payable over a period of years so it would help cover expensive care in the event you need it.  If you don’t use it then your family inherits the initial amount less expenses, depending on the contract fees.  Or maybe you use it for only two years and barely see a true profit from it.  When it’s explained properly, everyone I know passes on it.  I don’t tell people not to do it, I just tell them the truth.

Everyone needs to remember that there is no benefit without cost.  If an annuity that pays a high level of income also has a long term care rider, then it may be a benefit.  Please don’t take less income just so you can get a double income benefit that will likely not be there when you need it.  I am here to set the record straight for everyone.  I only want you to buy annuities for all the right reasons so there are no surprises in the future.  If someone is giving you a hard pitch and you want to know if it’s the right thing to do, get on the calendar and we’ll talk about it.

Have a great weekend!

Bryan

Last Updated on July 30, 2026 by Bryan Anderson