The provisions of the Pension Protection Act (PPA) of 2006 provide new tax benefits for what are often referred to as long-term care combination plans. These new benefits apply for life insurance policies and annuity contracts. PPA permits tax-free distribution of life insurance or annuity cash value to pay for long-term care (both beginning in 2010). As a result, you now have multiple ways to accomplish your long-term care planning. There is, of course, traditional long-term care insurance that you can buy on an individual basis or through your employer. These new products are also available on an individual basis or, increasingly, through a plan offered by your employer.
Why Are People Interested In These Options?
These combination products address one of the common objections of consumers to "stand-alone" long-term care insurance -- "wasting" the premiums if they never need long-term care. In fact, policies may offer a Return of Premium option (you could say a Money Back guarantee) that allows for a full refund of your premium at any time.
Life Insurance and Long-Term Care Benefits
You can obtain two forms of very valuable protection in one convenient policy. Some companies offer recurring premium policies which may be more attractive to middle-aged buyers. Others offer single-premium policies that can be attractive to older consumers with invested assets they have set aside to "self-insure" their health and long-term care needs in their retirement years.
Like all life insurance policies these policies pay a death benefit to your beneficiaries. What makes them special, however, is your ability to use as much of your death benefit as you need to pay for qualifying long-term care costs.
The second approach is the "optional rider" policy design. The base policy you buy is permanent life insurance (as opposed to term life) and the long-term care benefit protection is provided through an optional rider. Often these policies involve a recurring premium payment.
Some policies will provide multiples of long-term care benefit options. So, say you purchase $200,000 of life insurance; you could have access to $400,000 to pay for qualifying long-term care costs. Any portion of your death benefit not used for long-term care will go to your beneficiaries as a death benefit.
Annuities and Long-Term Care Benefits
Currently, there are only a few insurance companies that make available an Annuity+LTC combination offering. But a number of companies have products on the drawing board a result of the Pension Protection Act of 2006 that allows for tax-qualified long-term care benefit payments from annuities beginning in 2010.