Long-term care has long been regarded as a major wild card when it comes to retirement planning. Those who end up needing it and don’t have insurance can quickly find themselves in the poorhouse, while those who pay for coverage and end up not needing it have spent a great deal of money on a useless policy. Genworth Financial Inc. has created a new type of annuity that provides a viable alternative for those without coverage who may not pass the underwriting guidelines for traditional long-term care insurance. The IncomeAssurance Immediate Need Annuity is now available for people who are at least 70 years old, need care and are concerned about outlasting their savings.
Tom McInerney, president and CEO of Genworth, stated that: "While healthy people have many options to help fund their future long term care expenses, that's not the case for older Americans who need care now and are afraid of running out of money. Our new IncomeAssurance Immediate Need Annuity provides another way to help pay for care, one that addresses a very real need that is significantly underserved today." (For more, see: Types of Long-Term Care Coverage.)
How it Works
The IncomeAssurance annuity is a Single Premium Immediate Annuity (SPIA) that pays out a higher benefit to those who need long-term care. In form and design, this product is fundamentally similar to most other SPIAs. A lump sum is paid into the contract, and a guaranteed monthly payout that the annuitant cannot outlive will begin immediately. Contract owners have the same payout choices of straight life or straight life with period certain (up to five years for IncomeAssurance), that are found in all other types of annuities.
But the difference between this product and other SPIAs is that it requires medical underwriting that can affect the payout schedule. Most other SPIAs calculate their payouts based solely upon age and gender, which means that someone with major health issues will get the same payout as a healthy person of the same age and gender. But depending on health, the Genworth product will usually pay out anywhere from 20% to 50% more than other products if the annuitant has any type of major health condition, which can greatly aid long-term care recipients. (For more, see: Choosing Long-Term Care Insurance: Which is the Best?)
This arrangement is somewhat similar to the increased payout that consumers can get from other products such as fixed-indexed annuities, which may double or triple their annuitized payout if the annuitant has a qualifying long term care event. But the payout in this product is not dependent on a qualifying health event or care need, and will remain constant over its life, regardless of whether the annuitant requires care or not. An optional COLA rider is available for this product at an additional cost. Planners who use this product will also need to involve other family members or loved ones and/or get a power of attorney if the annuitant shows any sign of cognitive impairment. Senior suitability training is also required for those who sell this annuity.
Pros and Cons
In addition to providing a higher payout, one of the key benefits that the IncomeAssurance annuity can provide is freedom. If the annuitant ends up not needing long-term care, then the money can be used to pay for other expenses or for anything else they desire. There are also no periodic evaluations of the annuitant’s health and no claims to file. And annuitants also don’t have to worry about premiums going up, as this product is completely paid for with an initial lump-sum amount. However, increasing consumer longevity coupled with the current low-interest rate environment has forced many insurers to lower their annuity payout factors, so consumers who are interested in buying this product may want to break their purchase up into a periodic ladder of contracts. This can allow them to take advantage of rising interest rates in a similar manner as with a bond portfolio. One other key piece of information to keep in mind is that Genworth’s financial rating was recently lowered by the ratings agencies to a B.
(For more, see: Long-Term Care Insurance: Who Needs It?)
When you compare the IncomeAssurace annuity to other forms of long-term care protection, the benefit that is paid will probably not be as large because it is not insurance. The income that is drawn from this contract is also fully or partially taxable as ordinary income depending on the tax status of the source funds, whereas the benefit from a long-term care policy or accelerated benefit rider will be tax-free. This type of contract also has the potential of paying back less than the amount paid in if the owner opts for a straight single or joint life payout without a period certain.
The Bottom Line
The IncomeAssurance annuity product is not the first of its kind. Other insurers, such as Mutual of Omaha and John Hancock, have had similar products on the market for several years. But this marks the beginning of a major shift by Genworth to specialize in the long-term care market. It is already the largest insurer in this market. This product is geared towards consumers age 70 and above who would like some form of long-term care protection and either cannot afford long-term care insurance or cannot qualify for it due to medical conditions. For more information on the IncomeAssurance annuity product, visit the Genworth website. (For more, see: Financial Advisor Client Guide: Long-Term Care Insurance.)