a. Low Return
Annuities tend to have low returns, sometimes as low as 1% or even 0%.
b. High Costs
Annuities already tend to have higher costs, with LTC rider, the costs will be even higher.
Both drawbacks are real, however, here is the right perspective to look at them -
An annuity-LTC combo essentially transfers 3 risks to the insurance companies - investment risk, interest rate risk, and longevity risk. If you could use a small portion of your portfolio to address all these risks, just like homeowners insurance or auto insurance, it makes sense to pay the fees and achieve two biggest objectives - a) Lifetime income, and b) some level of protection in the even of long term care.
In our next blog post, we will discuss who are the ideal customers of annuity-LTC combo policies.