There has already been a substantial increase in development activity of annuity and LTC combination products.
This has come fast on the heels of the new Pension Protection Act of 2006, which greatly enhanced the appeal of combination products by treating appropriately designed combinations favorably, for the first time, from an income tax perspective.
Now, life insurance plus LTC combination products are becoming more compelling, too, and that's the topic here.
Life and LTC products have been sold for approximately 20 years. The typical design involves accelerating the death benefit should an individual become chronically ill. However, other types of "favored" benefits may be defined and may also be worthwhile.
As an example, Middle America has embraced the use of term life policies for life event coverage. But such offerings can be expanded to offer LTC acceleration features, too. For example, return of premium (ROP) provisions in term life contracts can be expanded to help fund a string of payments commencing with the date the ROP benefit becomes available.
Furthermore, such benefits can be expanded by another order of magnitude via the inclusion of an LTC provision. This would enhance the payout in event of chronic illness. The timing is right for this, since LTC need becomes most readily apparent in the years near and immediately after retirement–a phase of life that baby boomers are now about to enter.
The accompanying chart summarizes the PPA's significant provisions in this area. A review of the key points demonstrates that it can now be said with confidence that any increase in payout in such designs will be received without tax consequences. There is a good chance that the entire amount can be received income tax free as well.
Other payout provisions in life contracts merit discussion in the LTC context, too.
