Asset-based or hybrid products are the more popular product designs today.
They are designed on a permanent life insurance chassis or an annuity chassis with LTC riders and there are several variations on these designs.
Life Insurance Hybrids
The majority are designed to leverage the premium creating a pool of funds to be used for care needs. And premiums are guaranteed never to increase. Policyholders share the risk with these products because the cash value and death benefit are the first resource to pay for LTC expenses.
When talking about these products we like to say, “live, die or quit, there’s a benefit.”
For example, with the life insurance-based product, if you die never having needed long-term care, you get your money back in a tax-free death benefit. But if you need care, you can accelerate the payment of the death benefit while living to pay for LTC. And if you quit the policy, the cash value less internal fees is refunded.
Annuity Hybrids
The annuity products are structured a bit differently, but your premium can be leveraged two or three times to create a pool of funds for care.
While the premiums cannot increase, a downside of the annuity designs is that they are more expensive solutions and require a significant single premium to fund a meaningful LTC benefit. But most of these products are underwritten in a phone call and no medical records are required.
Using the PPA
Provisions of the Pension Protection Act (PPA) allow the use of a 1035 exchange to fund long-term care insurance premiums in a tax-advantaged way using the cash value in an existing life insurance or annuity policy to fund LTCI products without creating a taxable event.
One of the most attractive funding options provided by the PPA allows for the exchange of the cash value in an existing annuity owned by one spouse to a new PPA compliant annuity and add the other spouse without creating a taxable event. Both spouses have LTC benefits.
Also attractive is that withdrawals from LTC compliant annuities to pay for LTC expenses are tax-free including the gain in the old annuity contract.
We know the nuances of each option so you don’t have to! Long-term care planning is all we do. Get started today.
See the previous blog posts in this series:
Long-Term Care Awareness Month is Coming
The Costs and Funding Options
