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Senior Insurance Utah

Medicare Insurance Solutions: For Seniors By Seniors

Asset-Based vs. Health-Based Long Term Care Protection

“If you needed long term care tomorrow, where would you get the money to pay for it?” The most complete retirement plans can be consumed by just a few years of Long Term care.

Asset-based long term care products are not the same as health-based LTCI policies. Asset-based products are underwritten and issued by life insurance companies, and use a life insurance or annuity tables. This means that benefits are available through death benefits and cash values, should the client ever need long term care. They are commonly funded with a single premium that clients reallocate from existing sources, such as other annuities, CDs, rainy day funds, or qualified money, allowing clients to forgo ongoing, annual premiums.

Remember that the asset identified should not be one that is needed for income, and that you should always weigh the benefits, costs, and implications of the new product in order to determine if it’s suitable for your client.

Life insurance and annuity-based long term care products differ in their approaches: Life-based products provide immediate leverage in the form of a death benefit that the policyholder can put toward qualifying LTC expenses. At death, any unused benefits pass income tax-free to heirs, and tax-qualified long-term care benefits are also income tax-free. Annuity-based products have benefited from the Pension Protection Act, which states that if specific criteria are met, annuity withdrawals for qualifying long-term care expenses can be taken income tax-free. Annuity-based products accumulate value for future LTC expenses as opposed to the life insurance approach, which has a day-one death benefit. Both life and annuity-based products typically offer the ability to extend LTC benefits beyond the death benefit or annuity value, and some companies even do so with guaranteed premiums.

You will also notice that there are different approaches to these asset-based LTC products. For example, life insurance options include both whole and universal life. While universal life insurance can sometimes offer slightly higher benefits, whole life-based products typically offer many more guarantees. On the annuity side, you can use either fixed deferred or variable deferred annuities as vehicles.

OneAmerica State Life Insurance

A new annuity strategy for long-term care protection Annuity Care® III becomes latest in Care Solutions portfolio; allows qualified money to be converted over a period of four years with only one-time, up-front underwriting required

Annunity Care III is the next in its highly successful line of tax-advantaged asset-based life insurance or annuity products with long-term care benefits. With Annuity Care III, a client can convert a portion of his or her qualified money portfolio -- not set aside for income -- into a single-premium deferred annuity over a period of four years, similar to a Roth IRA conversion.

Clients can access the cash value of the annuity for qualified long-term expenses if needed, and extended benefits are available. With Annuity Care III, as additional conversions are made and as cash value accumulates, long-term care benefits grow. Underwriting approval is only required at the time of the initial application and guarantees insurability throughout the four-year conversion period.

Annuities with long-term care benefits first appeared in the late 1990s. Their market significantly expanded in the last few years due to the Pension Protection Act, which allows the growth in cash value to be used for qualifying long-term care expenses without being subject to federal income tax. Any cash value in the annuity that is not needed for long-term care is passed along to heirs at the time of death.

With the Annuity Care III strategy, each premium paid (conversion) is deposited into a new policy with benefits based on attained age and subject to a new surrender charge schedule. Interest rates and monthly insurance charges will be based on the prevailing rates at the time each premium is received. While underwriting is only required at the outset and guarantees insurability during the entire conversion period, the right to purchase additional policies without underwriting terminates if any additional purchase right is not exercised.

Annuity Care III can provide long-term care protection for a husband and wife on the same annuity.

"For many Americans, tax-qualified funds are their largest asset class,” said Bruce Moon, vice president, individual products. “Annuity Care III gives consumers a new option to pay for long-term care protection using these dollars. The fact that we are using a fixed interest annuity as the vehicle for this protection offers peace-of-mind as well as predictability."

The policy used to fund the Annuity Care III strategy is a single premium deferred annuity, medically underwritten and issued by The State Life Insurance Company, Indianapolis, IN. It may credit additional interest to amounts withdrawn for qualifying long-term care expenses. Policy Form # SA-35 (or state variation). Not available in all states and may vary by state.