New “imbedded” benefit plans providing coverage for Long Term Care expenses are now available on specially designed Annuity products. With recent tax law changes, distributions taken from those plans to pay for Long Term Care expenses are received income tax free!

……FOR LEVERAGE AND TAX-EFFICIENCY

Non-Qualified Annuities can be an excellent tax deferred vehicle to provide income later-in-life. The problem with the Tax Deferred Annuity growth is that deferred taxes are due- and payable- regardless of why the withdrawals are made.

A new tax law that became effective in 2010 allows for the combination of annuities with Long Term Care insurance coverage with significant tax advantages. With the new products developed to take advantage of this opportunity 1- the annuity balance, depending on the plan, is doubled or tripled (2X to 3X premium) for Long Term Care use, and, 2- any distributions used to pay for Long Term Care needs are received income tax free.

Case Study

Jane is a healthy 70-year-old widow who recently retired. She has a nice pension, a couple of CD’s, a modest investment portfolio and a Non-Qualified Deferred Annuity (Annuity) with a value of $250,000.

She bought the Annuity 20 years ago with the intention to use it to supplement her retirement income; she now feels blessed knowing that she doesn’t really need additional income.

As she heads into retirement, she’s concerned about reports that show an estimated 70% of people over age 65 will require some form of long-term care services during their lifetime. While paying premiums for Long-Term Care Insurance isn’t out of the question, she doesn’t like the idea of paying premiums for something she may never use; so now she plans to use the Annuity to pay for Care should she ever need Care.

Jane meets with her Financial Advisor and he listens to her concerns and ideas. He shares with her that annuity distributions, even those made to pay for Long Term Care, will be taxable as gains over basis (and he reminds her that she bought the Deferred Annuity 20 years ago and has significant gains in the contract). He goes on to tell her that the Pension Protection Act of 2006, that went into effect in 2010, allows for income tax-free withdrawals from specially designed non-qualified annuities when the withdrawals are used to pay for Care expenses. He’s used this type of product with other clients and suggests that she might want to consider it too.

He then shows her how, via a Partial 1035 Exchange of $100,000 of her $250,000 Annuity into one of these specially designed products, the results would be as follows:

• Via the LEVERAGE provided by the insurance, Jane creates a $255,208 benefit to pay for Long Term Care expenses for 60 months (up to $4,253 per month),
• she’s created significant tax efficiency to pay for Care, while
• freeing up $150,000 to spend as she pleases.

ANNUITY UPGRADE
A MOVE FROM TAX-DEFERRED TO TAX-EFFICIENT

For Producer educational use only; not for use with the public.

Long Term Care Insurance is perhaps best appreciated by two groups of people 1) People receiving claim payments and 2) families of uninsured people who are paying for a family member’s Care out of their pocket.

…. for Efficient Risk Management.

It’s estimated that 70% of people over age 65 will need Care at some point of their life; but some people choose not to obtain coverage to protect against this financial risk. Why? Well, some people feel certain that they’ll be in the 30% who won’t need Care; others simply think they have enough assets to “Self-Insure”.

Now, new combination plans can take a small portion of liquid assets and, via leverage, provide for efficient risk management to pay for Care while providing a 100% Return of Premium guarantee from day one……….

Case Study

• Bill is a 68-year-old business owner who is considering selling his business and retiring. The business has provided Bill very good cash flow thru the years which, with the help of his Financial Advisor (FA), has allowed him to accumulate substantial assets including Stocks, Bonds, Cash and Real Estate holdings.
• Bill’s mother is 89 years old and was diagnosed with Alzheimer’s Disease a few years back; she’s now in a Nursing Home. Bill writes the checks each month to pay for her Care so he can quickly tell you that the cost of a private room in a nursing home in Mississippi is over $7,000 per month.
• He’s heard that 70% of people over age 65 will need some form of Care during their lifetime but he’s not concerned; he knows that he’ll be in the 30% who won’t need it. He also feels he has enough assets to self-insure (should the unlikely occur). So, there’s no reason to waste money on something he doesn’t need.
• Bill and his FA recently sat down to discuss his possible retirement.
• They agree that his portfolio should provide the income he needs to live very comfortably in retirement.
• His FA agrees that if anyone can beat the 70% odds of needing Care, it will probably be Bill, ……….
• But, he points out if Bill needs Care, as unlikely as it may be, he’ll be paying for it with 100 pennies on a dollar (after tax pennies) and, even a well-diversified portfolio such as Bill’s can take significant hits from time to time (as Bill’s portfolio did during, and a few years following, the late unpleasantness of 2008 and 2009), So, if he needs Care during a period like that, he’ll be paying for it with very expensive dollars.

So he poses a question to Bill, “If a Long-Term Care Insurance plan provided you a 100% Return of Premium guarantee (thus the “cost” would be the loss of earnings on the premium paid), while providing income-tax free leverage of $3 or $4 to $1 to pay for Care, would that be worth considering?”.

He gives Bill an example what a policy, paid via $150,000 taken from his cash reserves, would provide:

• An initial $474,615 pool of funds to pay for Care for up to seven years (leverage of $3.16 to $1) and grow, via a 5% Simple Interest Inflation Benefit, to $722,241 by age 80 (leverage of $4.81 to $1), or
• $150,000 of surrender value, from day one (less any benefits paid for Care), or
• $150,000 death benefit (less any benefits paid for Care or Cash taken from the policy).

If you were Bill, would you do it?

“Portfolio Insurance” ……. for Efficient Risk Management.

For producer education only; not for use with the public.