Does It Qualify

A couple of weeks ago on Coffee Break, we shared information about Annuity Care and, in last week’s Fridays with Fisher, I talked about the segment of the tax-code that creates the tax-free benefits offered by Annuity Care.

One thing that I often hear is “XYZ indexed annuity includes long term care benefits”.  As I noted last week, if the annuity contract does not have specific language that qualifies the distributions under IRC Section 7702B as long term care distributions, the money is NOT a long term care distribution which means it is not tax-free.

Consider this for a minute … through ignorance or negligence, annuity owners are often told that their annuity will provide long term care benefits.  In fact, those benefits are generally limited to waiving charges on income riders or increasing taxable distributions. 

Is that long term care? 

Pardon my language – HELL NO!

I am not against including a chronic illness rider on a policy, but I do object to them being positioned as a long term care benefit.  They are great as a backup plan inside of a comprehensive LTC strategy or as a  bailout strategy for someone whose health may prohibit them from securing true long term care protection. 

Here is a little something to think about. 

Let’s say that an annuitant has an fixed indexed annuity product that allows for Chronic Illness access to the policy and is taken as income from the annuity.  The benefit is will waive surrender fees and rider charges while the benefits are paid from the policy. 

What is often not noted is that those distributions are TAXABLE distributions assuming the annuitant meets the carrier’s qualifying criteria (which is more restrictive than a long term care policy).

This may seem insignificant – they need the money and it is in the annuity wish is intended to be liquidated in an emergency.  But, when the money is received, it is taxed as ordinary income which means that in addition to taxes, those distributions may impact benefits and programs that are means tested like Medicare.

Something else to consider …

What if the language only allows the annuitant to qualify if they are ADL deficient, but the client is cognitively impaired and fully capable of performing all 6 of the ALDs?  That is right, they wouldn’t qualify.

Assuming they qualify as ALD deficient, what if the policy will only pay benefits if the annuitant receives care in a nursing facility but the care is planned to take place at home.  You guessed it, they wouldn’t qualify.

There’s more – every carrier has a different spin on their chronic illness rider.  And, older policies tend to be more restrictive than newer ones.  It’s, as one agent said to me, “the Wild West without the guns” which leads me to the moral of our story. 

You need to know what has been put in place to address client’s long term care funding needs. 

If you don’t know what they have, grab the phone and we can help figure out what is going on with the policy.  All I ask is that you get a copy of the policy and rider language and, if possible, an illustration so that we can talk specifically about the case at hand.

For more information about 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.

One last thing, if you have not seen that episode yet, please take a moment.  I am sure that you’ll get a nugget or two of information from it.  Remember, a new episode airs the second Tuesday of each month and you can access it (or any past episode) on-demand at

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