Use Annuity Proceeds to Pay for Long Term Care Premiums

Help your clients protect all of their assets by taking a partial withdrawal from their non-qualified annuities to pay for long term care insurance. Under the Pension Protection Act of 2006, money can now be transferred from a non-qualified annuity (SPDA) to pay for long term care premiums tax-free. The tax savings from this strategy effectively reduces the cost of long term care insurance in comparison to funding it with taxable income or withdrawals. The tax is only deferred, however, until the annuity is surrendered and then taxes will need to be paid pro-rata on any gains. Income payments from a SPIA can also fund a LTC insurance policy tax-free.

Example: If your client has a non qualified deferred annuity worth $100,000 with $20,000 in gains and $2,000 is used to pay for a long term care premium, 80% (or $1,600) will be subtracted from the principal and 20% (or $400) will come from taxable gains in the annuity. If enough money is transferred over time from the annuity to pay for long term care premiums, the taxable gain could be erased completely.

The process of transferring the money from the annuity to pay for the long term care premium is a Partial 1035 Exchange. If the annuity and the LTC policy are with the same carrier this process is made very easy by providing a form that will automatically initiate the annual partial 1035 exchange process to fund a LTC policy. If two different carriers are involved it is important to check with them to find out what their requirements and restrictions are regarding partial 1035 exchanges.

Prior to participating in any 1035 exchange, you should help your client carefully consider factors such as the features, provisions, and crediting rate(s) of their current product, applicable surrender charges, any new surrender charge period on the purchase of a new product, as well as the various features and crediting rate(s) of the new product.

Get 1035 Exchange FAQs answered here.
View Funding Long Term Care Insurance Using an SPDA Case Study.

MVP is not offering legal or tax advice. Your clients should consult independent tax and legal professionals for advice based on their particular circumstances.

Prudential is out -- Who is still in?

A financial services leader, Prudential Financial has announced that they are pulling out of the individual long term care business, citing "the challenging economics of the individual market" and their "desire to focus...where we see the greatest opportunity." This announcement has no effect on their group long-term care insurance business and they expect to continue as a leader in the group market.

Just 39 carriers sell LTC insurance Nationwide. Of these, just 2 have paid more than $2.2 billion in LTC insurance claims. Only one carrier has paid over $5.4 billion in claims. Only one carrier has provided long-term care insurance for over 35 years*. So where does that leave us as advisors helping people plan to protect themselves when they are most vulnerable?

According to Pat Foley, President of Genworth Distribution and Marketing, "Genworth is unwavering in our commitment to the long term care industry, our policyholders and our distribution partners." Genworth Financial is the largest seller of LTC insurance in the U.S. and a leader in the industry since 1974. Their premier plan, Privileged Choice Flex combines innovation with rich, flexible benefits, making it one of the most comprehensive long term care insurance products available.

Transamerica LTC is celebrating just 25 years in the industry. They had pulled out of the individual LTC market several years ago and are now back in it; recently introducing their new TransCare II product.

John Hancock LTC has been in the business since 1987 and touts their 150 years of experience and stability in the insurance industry. Their signature Custom Care III product provides comprehensive coverage and a variety of valuable support services.

United of Omaha and American General are two more carriers that have individual LTC products available. United's Cash-First addresses the progression of care by paying cash on day one. American's LTC Plan is simple to understand and flexible enough to fit almost any budget.

Another industry giant, MetLife pulled out of the individual and group long-term-care insurance sales last year but continues to service existing policies. Allianz Life Insurance issued their last stand-alone LTC policies in 2010. They have re-directed their focus to combination products.

Almost every LTC insurance carrier has raised their rates at least once on their inforce blocks of business. In 2008 and 2010 John Hancock LTC announced rate actions seeking premium increases for inforce blocks of business on individual LTC policies. Genworth's first rate increase in 2010 was nearly 33 years after their first policy was placed. Transamerica raised their rates as much as 70% on one block of their business. United of Omaha raised rates in 2010 and American General, the newcomer to the LTC business, has not had a rate increase yet.

We have been taught that insurance is only as good as the company behind it so if the company is highly rated, financially strong and profitable...Well maybe there just aren't any traditional types of guarantees when it comes to long term care.

However, despite rate hikes and the uncertainty of the long term care industry as a whole, insuring the risk is still the most cost-effective way to protect oneself from the potentially devastating expense of long-term care. And, several of our carriers have introduced Life/LTCi and Annuity/LTCi combinations that DO provide some long-term guarantees.

MVP Financial Services still has LTC solutions for your clients. Give us a call.

*Genworth Financial long term care insurance website.

November is LTC Awareness Month

In anticipation for Long Term Care Awareness Month in November, MVP has partnered with Transamerica to bring you 4 timely LTC webinars.

Tune in every Tuesday at 10:00 AM CST, starting November 8th for a quick one-hour webinar:

November 8th 10AM CST: TranCare II- The Right Product for the Right Time
November 15th 10AM CST: Transamerica Underwriting-Flexibility with Responsibility-The Best Combination
November 22nd 10AM CST: Transamerica Multi-Life- The Way Multi Life Should be Done
November 29th 10AM CST: Executive Carve Out LTC- Start at the Top

Just click the corresponding link above to register for each webinar. You will receive a confirmation from Transamerica with the dial in information and link to the webinar.