The primary reason for using an immediate annuity (balloon and/or level-pay) in VA planning is to convert excess net worth into a low monthly income. Whether the excess net worth consists of cash, checking and savings accounts, stocks, bonds, mutual funds, cash value life insurance, or an IRA, it can be converted into an annuity. Additionally, using a tax-deferred annuity can provide a safe investment vehicle when gifting assets. Below are several interesting features provided by the annuity products typically used in appropriate VA plans:
As for a balloon-style immediate annuity, if prior to receiving the balloon payment, the owner decides it is not in his or her best interest to receive the balloon payment as it may jeopardize benefits - still on VA benefits, the owner can elect to continue/rollover the balloon-style immediate annuity.
Following the death of the owner of an immediate annuity contract, some insurance companies offer the beneficiary a cash commutation value, instead of continuing the monthly payments. If the beneficiary elects the cash commutation a discount does apply.
As for a balloon-style immediate annuity, at any time during the period certain the owner can elect to convert the balloon-style immediate annuity into a level-pay immediate annuity; this is a one-time election. The primary reason for doing so is that the owner needs to increase his or her monthly cash flow, as a result of increased unreimbursed monthly medical expenses. The secondary reason for doing so is that the owner is transitioning from VA benefits to Medicaid benefits - a Medicaid Compliant Annuity requires equal payments.
An immediate annuity can also be "Medicaid compliant" if it is actuarially sound, irrevocable, non-assignable, has equal payments, and names the state Medicaid program as the primary or contingent beneficiary to the extent of Medicaid benefits provided to the institutionalized individual. Almost every insurance company offers an immediate annuity, but only a handful of insurance companies offer a Medicaid Compliant Annuity. The problem for most insurance companies is that they cannot offer an immediate contract that is irrevocable as to the parties, and also is non-assignable.
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Krause Financial Services specializes in helping families qualify for Medicaid benefits through the use of Medicaid Compliant Annuities, and Veterans Aid & Attendance benefits through the use of various life and annuity insurance products.