Mutual of Omaha Long Term Care Annuity

As more Americans plan for a comfortable and financially sound retirement, asset-based long term care has become quite popular. Mutual of Omaha is among the few top insurers that have a long term care annuity insurance policy. Referred to as the Living Care Annuity, this policy entails paying a single premium.

What is a Hybrid LTC Annuity?

A hybrid LTC annuity is an ordinary-deferred fixed annuity that has a specified interest rate. Once you make the lump sum deposit, your account will grow year by year through compounded interest. Assuming that you do not withdraw any interest, your interest gains will build up tax-deferred. Perhaps one of the key benefits of a hybrid LTC annuity is that it provides leverage for LTC costs. More specifically, the Mutual of Omaha annuity leverages your investment 3 times over for assisted living, nursing home, in-home health, adult day care and other types of LTC expenses.

Mutual of Omaha Hybrid Living Care Annuity

To understand how Mutual of Omaha’s hybrid annuity works, let’s evaluate a case scenario.

A policyholder named John invests $100,000 in the hybrid annuity. This amount grows year in year out at a specified interest rate and functions like a conventional fixed annuity only that there is a tax deferral. The $100k investment needs to create a $300K pool so that the owner can access it for LTC expenses 2 years later. This pool of money ($300k) will be accessible for at least 6 years, at least $50 annually, plus interest growth.

Assuming an interest rate of 3%, the $100,000 grows to $106,090 after 2 years. This is leveraged 3X over to $318,270. Divide this by 6 years and the policyholder gets $53,045 per year for at least 6 years. That’s equivalent to $145 daily. If less than the $53,045 is used on LTC for a given, then the policy would last longer. Unlike traditional long term care policies, this is not a use-it-or-lose-it scenario.

LTC Rider Costs

The LTC rider provided by Mutual of Omaha long term care policy actually has a yearly cost. This is deducted from the interest rate earned annually.

For instance, if the policy has an interest rate of 4%, but then the LTC rider fees amount to 1%, then the effective credit for the annuity would be 3%. Keep in mind that rider costs and interest rates could change subject to economic conditions.

Medical Underwriting

Mutual of Omaha’s hybrid LTC policy requires medical underwriting. Policyholders need to provide answers for 12 pre-qualification questions, and a phone interview is also necessary. Individuals who’ve been denied other types of LTC coverage might not qualify the health underwriting for this plan. Generally speaking, though, hybrid annuities do require much less health underwriting compared to traditional LTC plans.

Applicants must prove insurability prior to purchasing Mutual of Omaha’s hybrid LTC annuity. Furthermore, benefits are only accessible after the policy has been active for a minimum of 2 years.

Inflation protection

Beyond the annual fixed interest rate, this policy also offers additional protection for inflation. Indeed, the annual interest growth rate might not be enough to counter inflation. For policyholders who need inflation protection, there’s a 5% compounding inflation rider that can only be bought when purchasing the annuity (not later).

Is this for me?

Compared to traditional LTC policies, Mutual of Omaha’s hybrid long term care annuity offers clear advantages. For once, the owner can retain control of the investment. Subject to surrender penalties, they can withdrawal their investment. The accumulative interest is also available monthly. However, most owners prefer to reinvest the gains so that their policy can grow further each year.

Assuming that you need just a little (or none at all) LTC, you have an asset that could be passed to your beneficiaries. If you’re concerned about paying for traditional LTC that you might never use, this policy makes a lot of sense.

1035 tax-free exchange

If you have an already existing annuity policy, you can easily exchange it for Mutual of Omaha’s hybrid policy tax-free via a 1035 exchange. This makes a lot of sense for people who have considerable deferred income within an ongoing fixed annuity or those who wish to drop volatile, under-performing variable annuity account.

Tax treatment

Mutual of Omaha’s Living Care Annuity is a tax-qualified policy. The LTC rider cost is not subject to income taxes. Policy payouts are also not subject to income taxation. If you have specific questions about this or other long term care policies, it’s advisable to consult a tax pro for deeper insights.

If you wish to learn more about the Mutual of Omaha hybrid long term care annuity or want to compare this policy with similar ones from other to providers, get in touch with us!