Wednesday, April 14, 2010

Removing the Fear of Giving and Not Getting

One of the big fears most people have is investing something—time, money, both—and not getting anything in return. This seems to be particularly so when it comes to a product like long-term care. It partially explains why a product that makes sense hasn’t taken off in the way that one would expect.

The risk of not having enough for care is very real. A one year stay in a nursing home currently averages $75,000 and home health care can run as high as $46 per hour, according to the ‘2009 Cost of Care Survey’ sponsored by Genworth Financial, Richmond, Va.

That’s why a recent announcement from Genworth about the launch of a single premium hybrid LTC/annuity “hybrid” called Total Living Coverage Annuity bears watching.
The new product is one of two or three linked products that are starting to appear in the market. The reason this new product type is emerging is because of a provision in the Pension Protection Act of 2006 which became effective on Jan. 1 of this year that allows a contract holder to make tax-free claim payments for covered long-term care expenses, allowing consumers to keep more of their own money.

Katie Liebel, vice president-linked benefit products with Genworth, explains why she thinks that this market has the potential to take off. She says that there are many consumers who “worry about paying premium and not having anything to show for it.” But with a linked product one gets the advantage of accumulating assets with an annuity and being able to withdraw from it if there is financial need and also have the option of using the money accumulated for long-term care.

As an example, she said that because of the new provision in the law kicking in, if one chose 3x leverage, on a $100,000 investment in the product there would be an initial LTC coverage maximum of $300,000 that could be taken out without taxes for qualified expenses.

If a contract holder dies, beneficiaries will receive a death benefit that is the greater of the annuity value or the single premium less long-term care expenses and other withdrawals.

Maybe the power of fear can be removed from the LTC decision. Or more specifically, the fear of paying something out and not getting anything back. The power of fear of not having enough to pay for proper care is an emotion that perhaps should be harnessed to make people aware that planning for the future, even if not pleasant, can minimize a burden on both the individual and that person’s family.

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