Annuity Care as LTC Funding Solution

Earlier this week on Coffee Break, we discussed Annuity Care.  This strategy happens to be one of the best kept secrets in the industry and it is hard to believe that because we have been offering the product since 1998.

That’s right – for 25 years, Annuity Care has been a long term care funding strategy.  And, it was the only product of its kind until 2010 when the Pension Protection Act (PPA) was implemented.  Since then carriers have come and gone in the space; the on thing that remains a constant is OneAmerica’s Annuity Care products.

Here is a quick refresher on the PPA and the opportunity that it represents for people who own nonqualified deferred annuities. 

The PPA allows for tax-free withdrawals from specific annuity contracts to pay for qualifying long term care expenses or premiums.  In other words, those distributions are treated as cost-basis and are not taxed.  Remember, only nonqualified deferred annuities receive this opportunity; IRA annuities are not eligible.

In order for a nonqualified deferred annuity to provide tax-free LTC benefits, under section 7702B created by HIPAA, a person that is receiving care must be certified as “chronically ill” by either being unable to perform 2 of 6 activities of daily living (ADL) or require substantial supervision due to being severely cognitively impaired and (in either case) be under a plan of care prescribed by a licensed medical practitioner.

In order for distribution from a deferred annuity to qualified as tax-free for LTC, the annuity contract MUST contain language that makes it qualify for long term care insurance under IRC Section 7702B.

As with any long term care policy, distributions made from the annuity for the purpose of long term care benefits or premiums will be shown on form 1099-LTC.

Remember, you can 1035 exchange cash value from a life insurance policy or a nonqualified deferred annuity into an asset-based annuity policy and create a pool of money that will grow modestly and provide tax-free long term care benefits.

In the case of Annuity Care, those monies can be leveraged to create a bigger pool of money by adding the Continuation of Benefits Rider.  And, that leverage, depending upon the product and insurability of the annuitant, may be able to extend for an unlimited duration.

There is tremendous opportunity for this long term care funding strategy and, in my opinion, it is the most underutilized way to secure long term care insurance.

For more information about the PPA and Annuity Care, contact either my internal Justin Fox or me.

Justin Fox                         (844) 658-3725

Kevin Fisher                       (678) 512-9627

And – most important to me – thank you for taking a few minutes for me.

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