As explained in the last two weeks' posts, Invest in FIA to Fund LTCI Premiums When Retired – Parts 1 and 2, the purchase of long-term care insurance ("LTCI") needs to be a lifetime commitment. It isn't enough to plan for how you will pay for your LTCI premiums during your working years. Planning for the potential purchase of a LTCI policy should be included as part of the retirement income planning process to determine the sources of income that will be used to pay for LTCI throughout retirement.
One potential source of income that can be used to fund LTCI premiums during retirement is a fixed index annuity ("FIA") with an income rider. As explained and illustrated in the last two weeks' posts, with a FIA, you can determine the initial and ongoing investment amounts required to produce a targeted amount of income to match your LTCI premiums, including projected increases in same.
Another strategy that can be used for this purpose is to purchase a deferred income annuity ("DIA"), commonly referred to as longevity insurance. Similar to a FIA with an income rider, in exchange for an initial investment, or premium, you're entitled to receive a lifetime income beginning at least a year from the date of purchase. You can invest a specified amount in a DIA that will result in the amount of lifetime income beginning at retirement that will be sufficient to pay your LTCI premiums.
There are several important differences between FIA's with income riders and DIA's that will influence which retirement income planning strategy is preferable for funding LTCI premiums in a given situation. There are five key distinctions that need to be considered as follows:
- Income start date flexibility
- Income increase provision
- Income tax consequences
- Investment value
- Death benefit
The first three distinctions will be explained in next week's post. Part three will discuss the fourth and fifth differences. Part four will present a sample case to illustrate the use of a DIA vs. a FIA with an income rider to fund LTCI premiums during retirement.