Several years ago, I attended one of the most exciting CE courses of my life. It emphasized a new type of product that was going to be hot. Because of legislation that was passed shortly before the class, this new type of annuity promised to be the messiah of the insurance industry: the combo annuity.
The combo annuity simply combined an annuity with long-term care (LTC) insurance coverage. Prior to Congress' passing of the Pension Protection Act of 2006 (the PPA), the LTC component's funding source (the gains on the contract) were considered a taxable distribution. This made a great concept considerably less attractive. However, the favorable tax treatment provided by the PPA promised to multiply sales of these much-needed products.
If you need guaranteed lifetime income and a vehicle that addresses the risk that you may end up confined to a nursing home or a care facility, the combo annuity is strategically positioned to address these concerns, all the while providing a tax-deferral feature. Plus, combo annuities don't have the ugly "use it or lose it feature" associated with standalone LTC. With so many companies exiting the LTC market, it seemed that sales of these products would explode overnight. But over the course of six years, sales of combo annuities have dropped off the map.
Very few insurers have shown interest in offering the products. In fact, when consulting with my insurance company clients, I actually advise them not to waste their time and efforts with combo annuities. Sure, it's an administrative nightmare and the underwriting challenge causes some to pause. However, it's the distribution methods used to sell annuities that are resulting in a lukewarm response to these products.
