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The Various Risks of a Private Annuity to Pay for Long-Term Care

annuitiesAfter you’ve built a strong retirement fund, it might seem as though you have too many ‘eggs in one basket,’ so to speak. As a result, you may be tempted to invest in a private annuity. When someone suddenly requires significant care during their advanced years, it might be difficult to manage those various funds and even liquidate them in a reasonable fashion to be used to pay for that level of care, which can include home care.

A private annuity is a “contract between an insurance company and a customer, typically called the annuitant. The contract obligates the company to make a series of fixed annuity payments to the annuitant for the duration of the contract (US News).”

For some it can be a safer option than leaving their assets (at least the bulk of them) in stocks or other investments, which are not always guaranteed. Most financial advisors recommend having at least a portion of one’s retirement portfolio vested in annuities, but certainly not all of them.

How Do These Annuities Work? 

Understanding how they work would likely serve a good purpose at determining whether they’re right for you, especially when you or your spouse may require some type of long-term home care or other care options.

When you purchase an annuity, you essentially make a lump sum payment to the insurance company you contracted with and then they will pay you back an agreed upon amount every month for a specific duration of time.

This can provide a great deal of comfort to many seniors because, like Social Security or pension payments, they will know these payments will be coming in at the same time each month. However, there are some risks of which to be aware.

Potential Risk 1: Inflation

While Social Security generally provides ‘cost of living’ increases based on inflation, annuities do not, so the buying power of those dollars will continue to decrease over time.

Potential Risk 2: Benefits may not pass to a survivor. 

If you’re married and you don’t get a joint annuity, in the event that you die and there is still equity in that annuity, your spouse won’t receive any of it. In fact, with a single, private annuity, even if you made a large lump sum payment and passed away a couple of months later, the insurance company is under no obligation to return any of that money to your estate.

Potential Risk 3: There are no guarantees. 

You will be dealing with a private company and they can fail. Annuities are not insured, so in the event that the company you deal with goes out of business, you could lose your investment (US News).

**This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes tax, legal, insurance or investment advice.**

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Valerie VanBooven RN BSN

Editor in Chief at Approved Senior Network
Valerie is a Registered Nurse and long-term care expert. She has published 4 books on caring for aging adults and is the Editor in Chief of and