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Nursing Home Doublers Often Make Sense for those who cannot Afford LTC Insurance

When most people think about annuities, they think about an insurance product that generally offers guaranteed lifetime income, and for good reason. After all, this has long been the core selling point of annuities.

In fact, however, annuities also have other advantages, and one found in a small but growing number of contracts is particularly timely. This is a so-called nursing home doubler, which most commonly doubles your annuity income for up to five years if you wind up in a nursing home or requiring professional at-home care. It has become available at a time when most middle-class people have been priced out of the traditional long-term care (LTC) insurance market.

Full disclosure is in order. Nursing home doublers are not a replacement for LTC insurance. A good LTC insurance policy will pick up the entire tab – or just about the entire tab – of a nursing home stint, for at least three years, the typical lifespan of a person confined to a nursing home. Doublers do not do this. Rather, they help mitigate the expense of nursing home care when people already have enough on their minds without also worrying about their financial affairs.

Doublers Can Cost Literally Nothing

Moreover, doublers require no medical exam and cost nothing or close to nothing, obviously icing on the cake.

A good LTC insurance policy is best, but most people can’t afford it, don’t want to pay for it, or both. The average price for a comprehensive LTC policy for a single 55-year-old can be as high as $2,550 annually, says the American Association for Long-Term Care Insurance. For a couple aged 55, it can as high as $3,970 annually. A 90-day elimination period is standard.

The price tags are particularly troubling given that 70 percent of Americans over 65 will eventually require long-term care, according to a study by the U.S. Department of Health and Human Services. According to another study by the Employee Benefit Research Institute, about 60 percent of Baby Boomers and Generation X families are theoretically in a position or will be to retire in good shape. This isn’t as good as it sounds, however, because it excludes the financial burden of long-term care. Include this in the calculation and the percentage of couples with inadequate retirement funds doubles.

A Doubler Is Better Than No Healthcare Protection At All

If you’re one of tens of millions of Baby Boomers fearful of this scenario, an annuity with a doubler is unquestionably better than an annuity without one – assuming the other annuity terms, particularly their living benefits, are roughly similar.

The media constantly underscores America’s downsizing middle class, an unfortunately reality. Annuities with doublers, in a sense, are part and parcel of this trend, but in a good way. They serve as a substitute, of sorts, for LTC insurance in an era of diminishing affluence, and while certainly not the gold standard for nursing home insurance, they are unquestionably better than no financial protection at all.

About 10 annuity purveyors offer doublers. A doubler is a loose term. Payments commonly double in the case of a long-term care scenario, but sometimes increase only 50 percent. In other cases, they triple. It also should be noted that only one spouse is entitled to the doubler benefit in joint annuities with a doubler.

Annuities with doublers offer home healthcare riders or confinement riders. A home healthcare rider offers nursing home care or professional at-home care if the person in question cannot perform two of six activities of daily living, such as eating or dressing. A confinement rider covers a person only if he is confined to a nursing home or other qualified care facility.

Even Doublers That Charge, Charge Very Little

Insurance companies justify the expense of doublers in their bid to gain market share. To appreciate how little a doubler costs – assuming there is any price at all – consider the case of the North American Index Annuity, offered with or without the nursing home doubler. If a 60-year-old man invests $400,000 in this annuity with the nursing home doubler (which in this case is a confinement rider) and waits five years to take withdrawals, the annuity will grow to $554,497 in value and pay a 5 percent annual income steam, or $2,310 a month.

The same policy without the rider would pay exactly the same but the account value of the policy – what a beneficiary would inherit – would be $2,000 higher over five years. The different between the two, obviously, is very small.

Bernie Moritz, a Somerset Wealth Strategies client who lives in Michigan, bought annuities with the nursing home doubler with his wife after researching the LTC insurance market. The couple thought there was an insufficient number of LTC insurance policies and that they were too pricey. They were also unable to get a handle on how much their policies might rise in price. And what would happen to them if the insurer behind their policy bailed out of the policy, as scores have done over the years, they wondered.

Ultimately, Moritz calls the decision to sidestep an LTC insurance policy and buy an annuity with a doubler instead “a no-brainer.” “Doublers have their limitations, but they are still a way to plan for long-term care,” he says.

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