Financial Planning
December 7, 2023

Long Term Care Annuities: The Pros and Cons

Stewart Willis

As we age, planning for long-term care is necessary for comprehensive financial planning. One option worth considering is a long-term care annuity, which can provide financial security and peace of mind. Annuities can play a pivotal role in your retirement planning.

What Are Long-Term Care Annuity Products?

A long-term care annuity product combine the benefits of a deferred annuity and long-term care insurance. It is a reliable source of funding exclusively for any future long-term care costs you may encounter.

When it comes to deferred annuities, they are typically funded through a lump sum payment. Over time, they grow tax-deferred. If the owner of an annuity owner needs long-term care coverage, it can provide a steady income stream or a lump sum payment to help cover those costs.

With the annuity, you have options whether you need long-term care or not. It can serve as a reliable source of retirement income or can be passed down to beneficiaries. This hybrid product offers an appealing solution for individuals who want to secure their financial future and plan for long-term care if needed.

How Does a Long-Term Care Annuity Products Work?

Adding a long-term care rider to your annuity contract establishes the terms for receiving long-term care benefits and the coverage amount. This rider transforms your annuity with long-term care into a valuable resource for funding, either in addition to or instead of its original purpose as a retirement income source.

Care specialist attending to a senior in a wheelchair

To start receiving benefits from the annuity's long-term care rider, you must meet specific medical standards that require long-term care. This could include being diagnosed with a chronic or terminal illness or another degenerative disease that requires 24/7 care, either at home or in a nursing facility. You may need long-term care if you cannot perform activities of daily living (ADLs) like bathing, dressing, or eating.

What Are the Pros and Cons of Long-Term Care Annuity?

These are some of the most common advantages of annuities for long-term care:

  • Combination of Benefits: Long-term care annuities offer the ideal combination of growth potential and long-term care coverage. With these annuities, individuals can secure their financial future while protecting themselves against the high costs of long-term care.
  • Tax-Deferred Growth: Tax-deferred growth with long-term care annuities can benefit tax planning. This allows your funds to grow without being taxed. However, this can be better for you, depending on your financial circumstances.
  • Flexibility in Application: Depending on your long-term care annuity contract, they provide flexibility in how the benefits are used. The payouts can be used for long-term care or as retirement income.
  • Preserve Your Assets: Long-term care annuities can cover potentially exorbitant long-term care costs. You won’t have to worry about taking funds from other accounts to pay these costs. These annuities act as a protective shield for your assets, allowing you to preserve them for the benefit of your loved ones.
  • Guaranteed Income for Long-term Care Expenses: Long-term care annuities are particularly beneficial if you require long-term care and need a reliable source of funds. With annuities, you can confidently allocate your income towards covering potential long-term care costs, ensuring financial security and peace of mind.
  • Less Strict Medical Underwriting: Long-term care annuities often have less strict medical underwriting requirements than traditional long-term care health insurance products. This means you have greater flexibility when seeking coverage.

These are some of the disadvantages of using annuities for long-term care:

  • High Initial Investment: Investing in long-term care annuities may require a significant initial payment. While the upfront cost may seem daunting, these annuities provide individuals with financial security and peace of mind for future healthcare needs. Investing the lump sum to purchase the annuity for long-term care elsewhere could have potentially generated higher returns.
  • Complexity: Long-term care annuities can be a maze of complex contracts, filled with fees and stipulations that can leave even the most savvy consumers scratching their heads. It’s always best to seek expert guidance to understand the intricacies of annuities for long-term care.
  • Rising Cost of Living: The rising cost of living is a pressing concern regarding long-term care. There isn't a long-term care annuity calculator that can give you an accurate value of care costs. The benefit amount provided may not be sufficient to keep up with the ever-increasing costs of healthcare services.  
  • Limited Coverage: Long-term care coverage may not fully meet your needs due to limited scope and duration. This depends on how your annuity is set up.
  • Penalties for Early Withdrawal: If you withdraw funds early from an annuity for long-term care, you can be subject to penalties or a reduction in your benefits.

Get Personalized Financial Planning

Using a long-term care annuity as part of your financial planning depends on how well it suits your circumstances. Asset Preservation Wealth & Tax experts can help determine its suitability for your needs. We look at the bigger picture for our clients and asses tax implications and the impact each strategy will have.

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Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products. They do not refer in any way to securities or investment advisory products. Fixed insurance and annuity product guarantees are subject to the claims paying ability of the issuing company; not guaranteed by any bank or the FDIC.

Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

The commentary on this blog reflects the personal opinions, viewpoints and analyses of the author, Stewart Willis, providing such comments, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment, legal or tax advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations for services, execution of required documentation, including receipt of required disclosures. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Any statistical data or information obtained from or prepared by third party sources that Foundations deems reliable but in no way does Foundations guarantee the accuracy or completeness. Investments in securities involve the risk of loss. Any past performance is no guarantee of future results. Advisory services are only offered to clients or prospective clients where Foundations and its advisors are properly licensed or exempted. For more information, please go to and search by our firm name or by our CRD # 175083.

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