Annuities And CD Alternatives
The average number of seniors that are in bankruptcy has already surpassed the 178% bankruptcy rate for Americans between the ages of 65 and 74 between the years of 1991 and 2007.
According to the Center for Retirement Research at Boston College, the average American married couple requires approximately $197,000 to cover health care costs, which does not even take into account the overall cost for nursing home care.
Extraordinarily high healthcare costs are a major problem, but an annuity (when properly used) can help seniors alleviate the high costs that are associated with healthcare for the elderly.
What is an annuity?
In short, it’s a agreement between you, the annuity owner, and your insurance company. Your insurance provider will return your payment/investment and will agree to give you either a constant stream of income or a one-time financial payout at a pre-designated time in the future (usually after you retire from the workforce).
The type of annuity you require solely depends on numerous dynamics, the most important being your age.
What are the types of annuities?
There are several types of annuities:
- Immediate annuities – By using an immediate annuity, you will begin to receive payments instantly after making your first payment. Immediate annuities are the prime choice for individuals who require instant income from their annuity.
- Fixed – Has two forms: single premium and flexible premium. Single premium allows one lump sum and no additional. Flexible premium allows fuure additional deposits.
- Fixed indexed -Fixed has two forms: single premium and flexible premium as above. Then there are crediting methods to derive interect credits.
- Variable annuities – These are not guaranteed, have sub accounts like mutual funds and their value changes daily with the stock and bond market
- Deferred annuities – With a deferred annuity, you will receive payments at a later date, usually after you retire. Some deferred annuities from one month to a year, will allow for orderly withdrawal payments that will begin 30 days after the purchase of your annuity, up to approximately 10% per year on the average. With a deferred annuity, you have the luxury of either investing a lump sum or making periodic payments that are either fixed or adjustable. This money will grow tax-deferred until you opt to begin receiving payments. Studies have revealed that deferred annuities encompass the bulk of all annuity sales in the United States, and are without question appropriate for the long-term costs of healthcare for the elderly.
What are the advantages of annuities?
All-new guidelines from the United States federal government state that deferred annuities can be used as a form of payment for healthcare for senior citizens very simple. Thanks to the Pension Protection Act of 2006, seniors can use annuities to pay premiums for long-term care insurance.
Without question, this is a huge tax-advantage for annuity users. Before 2006, the IRS considered annuity payments as gains, and were taxed according to conventional income tax amounts. However, with this new pension act, those withdrawals are completely tax-free.
Are annuities guaranteed and if so how?
Fixed annuities are guaranteed by the insurance company that issues them, reinsurance from other companies, reserves of the issuing company and the Florida life and health guarantee association.
Are all policies fully protected?
There are limits to FLAHIGA coverage set by the Florida Legislature through the FLAHIGA Act. A policy must meet coverage requirements, and there are limits to the amounts FLAHIGA pays as a maximum. If your insurance company fails, the maximum amount of protection provided by FLAHIGA for any one person is:
Life Insurance Death Benefit: $300,000 per insured life
Life Insurance Cash Surrender: $100,000 per insured life
Health Insurance Claims: $300,000 per insured life
Annuity Cash Surrender: $250,000 for deferred annuity contracts per contract owner
Annuity in Benefit: $300,000 per contract owner
Some annuities have a provision to provide liquidity for long term care confinement, home health care, and terminal illness, and some have an ‘income doubler’ that doubles your lifetime income if you are confined to a LTC facility.
The simple way to use annuities
The simplest method of using annuities to pay for continuing health care is to ultimately purchase a “hybrid” insurance policy which includes annuities, as well as life insurance which includes long-term coverage. By doing so, you can use the proceeds for healthcare costs if you need them and for other needs if you do not.
Please contact your Assisted Living Services Of Florida advisor immediately in order to speak with a certified financial expert who will help you and your family get positioned properly and effectively for the future.