Deferred annuities with attached confinement care riders are the most recent overhyped benefit touted by agents, but they do have a place if fully understood for what they will and will not do.
What is a confinement care rider?
Some deferred variable and indexed annuities offer income riders that can be attached to a policy at the time of application to provide income guarantees starting a future date of your choice. A new trend in the annuity industry is for those income riders to also provide an additional income amount above the income guarantee if you become ill.
Each policy will have their specific rules on when you qualify for this enhanced payment, but most revolve around the ability to perform the six "Activities of Daily Living." Those are eating, bathing, dressing, toileting, transferring (walking) and continence. With most contracts, when you cannot do two of those six verified by your doctor, then you qualify for that enhanced income payout.
Most confinement care riders guarantee that increased income stream while you are sick for a five-year time period. After the five years, the income goes back to its original level. The reason most enhanced payments only last five years, is that studies show when you can't do two of the six activities, you live an average of three years and a maximum of seven. Annuity and life insurance companies have the big buildings for a reason, right! They know when we are going to die, even when we get sick.
Get your money back quicker when you get sicker
All annuity guaranteed income streams, regardless of the type of annuity, are a combination of return of principal and interest. You are transferring the risk to the annuity company, and your goal should be to draw the account down to zero so you can start taking money from the carrier's pocket. That's the true benefit of transferring risk.
With confinement care riders, you are getting your own money back quicker because you have proven to the carrier that you are sick. It's that simple, and you are drawing down your account value faster because the increased payment is subtracting from your annuity value.