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Combining Annuities with Long-Term Care Insurance: Evaluating Hybrid Solutions for Asset Protection and Long-Term Care Planning

As the cost of long-term care continues to rise, many retirees face a difficult planning challenge: how to protect assets from potentially devastating care expenses without sacrificing investment flexibility or leaving premiums "unused" if care is never needed. In this webinar, long-term care specialist Richard Rusoff of Kraus Agency explored how annuity-based long-term care (LTC) solutions can address that challenge by combining guaranteed accumulation, leveraged long-term care benefits, and favorable tax treatment under current federal law. 

Rusoff began by emphasizing that there is no single "best" long-term care solution. Traditional stand-alone LTC insurance generally provides the greatest amount of coverage per premium dollar, but it may also involve future premium increases and offers no return if benefits are never used. Hybrid products—including life insurance and annuity-based long-term care contracts—appeal to many clients because they provide multiple potential outcomes: long-term care benefits if needed, continued accumulation of assets, and a death benefit or remaining account value for beneficiaries if care is never required.

Throughout the presentation, Rusoff stressed that financial advisors should evaluate long-term care planning as an asset-preservation strategy rather than simply another insurance purchase. Rather than self-insuring entirely from an investment portfolio, clients may benefit from repositioning a portion of existing assets into products that leverage those dollars specifically for long-term care while preserving the remainder of the portfolio for retirement income and legacy planning.

The presentation also reviewed current tax rules governing qualified long-term care riders under Internal Revenue Code §7702B, the Pension Protection Act of 2006 provisions affecting certain non-qualified annuities, underwriting differences among carriers, and several leading annuity-LTC products currently available in the marketplace. The session concluded with a practical case study illustrating how guaranteed LTC leverage can compare favorably with attempting to self-fund future care entirely through investment returns.

Key Topics and Expanded Insights

Understanding Today's Long-Term Care Planning Landscape

Rusoff began by clarifying a common misconception: long-term care insurance is not synonymous with nursing home coverage. Modern comprehensive policies generally provide benefits across the continuum of care, including:

• Home health care 
• Assisted living facilities 
• Skilled nursing facilities 
• Adult day care 
• Hospice and other qualifying care settings 

For many clients, remaining at home for as long as possible is the primary objective, making home care benefits one of the most valuable features of today's policies.

He also distinguished between four broad categories of long-term care products:

• Traditional stand-alone LTC insurance 
• Hybrid life insurance with LTC riders 
• Hybrid annuity-based LTC products 
• Short-term care and home-care-only policies 

Each serves different client needs depending on health status, available assets, planning objectives, and budget.

Advisor Takeaways

• Long-term care planning should begin with the client's overall retirement income strategy rather than product selection. 
• Home care benefits are often more valuable to clients than nursing home coverage. 
• Clients who dismiss LTC insurance because they "never want to enter a nursing home" may misunderstand how modern policies function. 

Why Clients Purchase Annuities

Rusoff explained that annuities are frequently chosen because they provide certainty in areas where retirement planning often involves uncertainty.

Common motivations include:

• Guaranteed income 
• Protection from market volatility 
• Predictable accumulation 
• Legacy planning 
• Peace of mind 

Unlike investment portfolios whose values fluctuate daily, fixed and indexed annuities provide clients with clearly defined guarantees regarding principal protection or future income, depending on the product selected.

Many retirees also appreciate knowing that a surviving spouse or heirs will receive remaining account values if benefits are not exhausted.

Planning Implications

For clients uncomfortable with market volatility, annuity-based LTC products can satisfy two objectives simultaneously:

• preserving retirement assets, and 
• creating a dedicated funding source for future care expenses. 

The Financial Impact of Long-Term Care

One of the webinar's recurring themes was that long-term care expenses can quickly overwhelm even well-funded retirement plans.

Rusoff cited national median costs approaching $90,000 annually, while acknowledging that costs in many metropolitan areas now exceed $120,000 to $180,000 annually depending on the level of care required. Current national surveys continue to demonstrate wide geographic variation, with nursing home costs commonly exceeding $10,000 per month in many states.

He also discussed industry statistics showing that many individuals turning age 65 will require some form of long-term care during their lifetime, although the duration of care varies considerably.

The presentation highlighted average claim durations as planning benchmarks:

• Men generally experience shorter claims than women. 
• Alzheimer's disease and other dementias often result in significantly longer care periods than physical impairments alone. 

Rather than attempting to predict an exact claim length, advisors should use family history, health status, longevity expectations, and available resources to determine appropriate benefit periods.

Advisor Considerations

Rather than asking, "Will this client ever need care?" advisors should ask:

• How would care affect retirement income? 
• Which assets would be liquidated first? 
• How would a surviving spouse be impacted? 
• Would the client lose control over care decisions if assets were exhausted? 

Traditional Long-Term Care Insurance vs. Hybrid Solutions

Rusoff presented a balanced comparison of traditional policies and hybrid products.

Traditional Long-Term Care Insurance

Advantages include:

• Highest leverage per premium dollar 
• Broad comprehensive coverage 
• Lower initial premium 

Potential disadvantages include:

• Possible future premium increases 
• No residual value if benefits are never used 
• More comprehensive underwriting 

Hybrid Annuity-Based Long-Term Care Products

Advantages include:

• Guaranteed premiums 
• Accumulating account value 
• Leveraged LTC benefits 
• Remaining value available to beneficiaries 
• Simplified underwriting 
• Greater client acceptance among individuals reluctant to "use it or lose it" 

While hybrid products typically require substantially larger initial deposits than traditional policies, many retirees prefer repositioning existing assets rather than committing to ongoing annual premiums.

Leveraging Existing Assets Instead of Purchasing New Insurance

One of the webinar's strongest planning concepts involved asset repositioning.

Rather than asking clients to contribute entirely new dollars, advisors may identify:

• Existing annuities 
• Certificates of deposit 
• Low-yield savings accounts 
• Money market funds 
• Bond portfolios 
• Cash reserves 

These assets can potentially be repositioned into hybrid long-term care contracts that leverage the original deposit into substantially larger long-term care benefit pools.

Rusoff emphasized that clients are often simply moving money "from one pocket to another" while increasing its effectiveness for a specific retirement risk.

Planning Opportunity

For many retirees, allocating only a portion of conservative assets toward LTC funding may protect a much larger investment portfolio from catastrophic care expenses.

Tax Advantages of Qualified Long-Term Care Riders

The webinar devoted significant attention to the tax treatment of qualified long-term care benefits.

Qualified long-term care riders issued under Internal Revenue Code §7702B generally allow benefits received for qualified long-term care expenses to be excluded from taxable income, subject to applicable federal rules.

Rusoff emphasized the importance of confirming that policies use qualified §7702B riders rather than older or alternative chronic illness riders that may operate differently.

Pension Protection Act Opportunities

The Pension Protection Act of 2006 created favorable tax treatment for certain exchanges involving non-qualified annuities used to purchase qualifying long-term care coverage.

Rusoff illustrated a common scenario:

• A client purchased a deferred annuity years ago. 
• The annuity accumulated significant taxable gain. 
• Rather than surrendering the annuity and recognizing immediate taxable income, the client may reposition the asset into certain qualifying hybrid LTC contracts. 

When structured properly, future qualified long-term care benefits attributable to those gains may be received income-tax free under current law.

Important Clarification

These rules primarily apply to non-qualified annuities. Qualified retirement accounts (traditional IRAs, 401(k)s, and similar plans) follow different tax rules, and withdrawals generally remain taxable as ordinary income unless Congress provides otherwise.

Advisors should coordinate these decisions with qualified tax professionals.

Qualified vs. Non-Qualified Assets

Several audience questions focused on funding hybrid LTC products with retirement accounts.

Rusoff explained that certain carriers allow qualified retirement assets to fund annuity-based long-term care products.

However:

• Required Minimum Distribution (RMD) rules generally continue to apply to qualified accounts. 
• Qualified assets do not receive the same Pension Protection Act treatment available for certain non-qualified annuities. 
• Taxation depends on how distributions are structured and whether benefits are used for qualified long-term care expenses. 

These distinctions make tax planning an important part of product selection.

Simplified Underwriting Expands Planning Opportunities

Compared with traditional long-term care insurance, many annuity-based LTC products require significantly less underwriting.

Depending on the carrier, underwriting may involve:

• Brief health questionnaires 
• Telephone interviews 
• Prescription database reviews 
• Limited medical records 

Some products even offer guaranteed issue options with reduced leverage.

Simplified underwriting may benefit:

• Older applicants 
• Individuals with manageable medical conditions 
• Clients declined for traditional LTC insurance 

Ideal Clients for Annuity Long-Term Care Products

Rusoff suggested these products are particularly attractive for:

• Retirees with significant cash reserves 
• Clients holding large conservative investments 
• Individuals between approximately ages 55 and 75 
• Older clients unable to qualify for traditional policies 
• Investors seeking principal protection 
• Individuals who dislike paying insurance premiums with no residual value 

The products may be less appropriate for younger individuals without accumulated assets or clients whose primary objective is maximizing insurance leverage at the lowest premium cost.

Comparing Major Carrier Solutions

The presentation reviewed several carriers currently active in the hybrid annuity LTC marketplace.

Nationwide Care Matters

Highlighted for:

• Guaranteed growth 
• Simplified underwriting 
• Established hybrid product history 
• Fixed interest accumulation 

Global Atlantic

Features discussed included:

• Simplified health questions 
• Two- and three-times leverage options 
• Inflation protection riders 
• Joint coverage options 

OneAmerica

Rusoff discussed multiple approaches, including:

• Qualified and non-qualified funding 
• Annuity-funded life insurance 
• Long-term care riders 
• Indexed growth options 

EquiTrust Bridge

The webinar devoted considerable attention to EquiTrust's indexed annuity-based LTC product, emphasizing:

• Indexed growth potential 
• Guaranteed issue options 
• Significant leverage 
• Simplified underwriting 
• Strong suitability for asset repositioning strategies 

Rusoff noted that product availability, features, underwriting standards, and rider options continue to evolve and should always be verified with current carrier materials.

Case Study: Leveraging Assets for Future Care

A central illustration involved "Sandra," a healthy 60-year-old with $100,000 available for planning.

Rather than self-funding long-term care entirely through investment returns, Rusoff illustrated how an annuity-LTC strategy could immediately leverage that deposit into a substantially larger long-term care benefit pool while allowing continued account growth.

The case study demonstrated several planning principles:

• Early planning increases leverage. 
• Better health generally improves available benefits. 
• Guaranteed LTC benefits may outperform uncertain investment assumptions when evaluating future care costs. 

While the illustration used carrier-specific assumptions, the broader concept was that dedicated LTC leverage can substantially reduce the investment returns required to self-insure long-term care expenses.

Concierge Services Add Value Beyond Insurance Benefits

An often-overlooked feature discussed during the Q&A was the value of carrier support services.

Many long-term care insurers provide care coordination resources such as:

• Claims assistance 
• Care planning 
• Facility referrals 
• Home care coordination 
• Family support 
• Ongoing case management 

These services can be invaluable during stressful health events and often distinguish comprehensive LTC products from simply accumulating investment assets.

Practical Advisor Takeaways

Financial advisors should view long-term care planning as an integral component of retirement income and asset preservation rather than an isolated insurance discussion.

Key implementation strategies include:

• Evaluate long-term care exposure before retirement begins. 
• Identify conservative assets that could be repositioned to increase long-term care leverage. 
• Compare traditional and hybrid solutions based on the client's objectives—not simply premium cost. 
• Coordinate tax planning carefully when using qualified or non-qualified assets. 
• Review family medical history alongside financial resources when determining benefit periods. 
• Understand each carrier's underwriting requirements before recommending a strategy. 
• Consider the additional value of care coordination and concierge services—not just insurance benefits. 
• Revisit long-term care planning periodically as products, tax laws, and client circumstances evolve. 

Ultimately, Rusoff emphasized that no single product fits every client. Traditional policies, hybrid life insurance, annuity-based long-term care products, and even self-funding strategies all have a place within comprehensive financial planning. The advisor's role is to help clients understand the tradeoffs, preserve flexibility, and protect retirement assets from one of the largest financial risks many families will ever face. 

External Reference Sources

Internal Revenue Service – Qualified Long-Term Care Services and Contracts
https://www.irs.gov/publications/p502

Internal Revenue Code §7702B – Treatment of Qualified Long-Term Care Insurance
https://www.law.cornell.edu/uscode/text/26/7702B

Internal Revenue Service – Pension Protection Act of 2006
https://www.irs.gov/newsroom/pension-protection-act-of-2006

American Association for Long-Term Care Insurance
https://www.aaltci.org

National Association of Insurance Commissioners (NAIC) – Long-Term Care Insurance
https://content.naic.org

Administration for Community Living – Long-Term Care Information
https://acl.gov

Centers for Medicare & Medicaid Services – Nursing Home Costs and Long-Term Care Resources
https://www.cms.gov

Genworth Cost of Care Survey
https://www.genworth.com/aging-and-you/finances/cost-of-care.html

OneAmerica Financial – Asset Care Product Information
https://www.oneamerica.com

Nationwide – CareMatters Long-Term Care Solutions
https://www.nationwide.com

Global Atlantic Financial Group
https://www.globalatlantic.com

EquiTrust Life Insurance Company – Bridge Annuity
https://www.equitrust.com