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What is an income doubler on an annuity?
An income doubler is a feature on some annuity income riders. If you cannot do basic daily activities or enter a care facility, it raises your yearly payment, often to twice the normal amount, for a limited stretch. In most designs the extra money is your own account value paid out faster, and the doubling stops if the account runs dry. The waiting period and the trigger decide whether it ever pays.
The doubler mostly pays you your own money faster
Most income doublers sit on top of an income rider. The rider is a feature on a deferred annuity, usually a fixed indexed one, that promises a yearly payment for life once you switch it on. The payment is a set percentage of a figure the contract calls the benefit base, a bookkeeping number rather than cash in hand.
If you later cannot do two of six daily activities on your own, things like bathing, dressing or getting out of a chair, or if you are confined to a licensed care facility, the yearly payment goes up. Often it doubles. Some designs raise it by half.
The bigger check does not come from the insurance company's pocket. It comes out of your own account value, the same pot your normal payments were already draining. If that value hits zero while the doubler is running, the doubling stops in most designs and you fall back to the normal lifetime payment. That normal payment is the insurer's promise, and it depends on the claims paying ability of the issuing insurance company.
A quick word on who is writing this. opfinances.com is a licensed insurance agency. We are not a financial advisor and not a fiduciary, and the insurance company pays us a commission when somebody buys a contract. This is general education, not advice about your situation.
The conditions are where the promise shrinks
There is a waiting period. Many contracts make you wait several years after you buy before the doubler can be used, and many require that your normal income payments have already started.
The trigger matters more than the multiple. Some contracts pay only for confinement in a nursing facility. Others accept a doctor's certification that you cannot do two of six daily activities, which can include care at home. The second kind is far more useful, because most people get care at home first.
The doubled payment usually has a time limit, commonly up to five years. After that you go back to the normal payment even if you still need care. Many contracts stop offering the doubler past a set age, and none will give it to someone who already needs care when they buy.
Run the doubled number against a real care bill
Take an illustrative 200,000 dollar contract with an income rider paying 5 percent at 65. That is 10,000 a year, and the doubler lifts it to 20,000. A private room in a California nursing home can run well past 10,000 a month, so the doubled payment covers about two months out of twelve.
Now follow the account value. Say it stands at 180,000 when care begins. Five years at 20,000 a year pulls out 100,000, before fees and growth. You end with roughly 80,000 left and a payment that drops back to 10,000. If the account ran out in year four, the doubling ended there.
Compare that with a contract built for care, where the insurance company's own pool starts paying after your money is used up. On a doubler, the insurer's money only shows up if the account hits zero, and then at the normal rate, not the doubled one. That is why it is so often called free: it costs the company little because it is mostly your money.
It is usually taxed like any other withdrawal
Our long term care rider page explains that care benefits from a qualifying combination annuity can come out income tax free under federal rules in place since 2010. An income doubler is usually not that. In most designs it is an enhanced withdrawal from an ordinary annuity, taxed as ordinary income, growth first. If the annuity holds IRA money, the whole payment is taxable anyway.
That difference is worth real money in a care year. A few newer contracts are built so the doubled payment qualifies as a long term care benefit. Do not assume yours is one of them. Get the tax treatment in writing and show it to your tax preparer.
Medi-Cal looks at it too. A doubled payment is income in the month you receive it, and income raises what you pay toward your own care before Medi-Cal pays anything. If Medi-Cal is part of your plan, bring in an elder law attorney before you buy.
Treat it as a bonus, never as the plan
If you were already going to buy an income rider for the lifetime payment, a doubler that comes with it at no separate charge is a small plus. It gets you to your own money faster, usually without a surrender charge in the way.
It goes wrong when the doubler is the reason for the purchase. Doubling your own money for five years is not long term care coverage. If care is the worry, price a standalone policy or a combination contract built for care, which have the insurance company's money behind them. A doubler mostly does not.
Income riders usually carry a fee, often around 1 percent a year, and the doubler is folded into that rider. The fee keeps coming out while the doubled payments shrink your account. Ask to see the same contract illustrated with and without the rider, and ask how the commission changes between the two. The gap tells you why the feature came up so early in the meeting.
Before you decide
Questions worth asking.
Does the doubled payment come out of my own account value, and what happens if the account value reaches zero while I still need care?
How long after I buy can the doubler be used, and does my regular income have to have started first?
What triggers it exactly, a nursing facility stay or a doctor certifying two of six daily activities, and does care at home count?
How many years does the doubled payment last, and is there an age after which the doubler is no longer available?
Is the doubled payment treated as a long term care benefit for tax purposes, or taxed like any other withdrawal?
Can you show me this contract illustrated with and without the income rider, and tell me how your commission differs between the two?
Related
Is an annuity income doubler the same as long term care insurance?
No. Long term care insurance pays the insurer's money toward your care once you qualify. An income doubler mostly pays your own account value out faster for a limited period, and if the account runs out the doubling stops. It can help with a care bill, but it is not coverage the way a care policy is.
Does an income doubler cost extra?
Usually there is no separate charge, but it is part of an income rider that typically carries a yearly fee, often around 1 percent. The fee comes out whether or not you ever use the doubler, and it keeps coming out while doubled payments draw down your account.
Can I get the income doubler if I already need care?
Almost never. Contracts exclude people who already cannot do daily activities or are already in a facility when they buy, and most add a waiting period of several years before the doubler can be used. The feature is for care that begins well after the purchase.
How long does an annuity income doubler pay?
Most designs cap the doubled payment at a set number of years, commonly up to five, then return you to the normal payment. The doubling also ends early if your account value reaches zero. The normal lifetime payment that follows depends on the claims paying ability of the issuing insurance company.
Where this fits.
This question sits inside a bigger one. Annuities walks through the whole decision rather than this one piece of it.
On Point Finances is a licensed insurance agency, not a tax, legal, or investment adviser. This page is general education, not a recommendation, and reading it does not create a client relationship.