Power to the Peeps - How Your
Annuity policy Can be a Powerful
Long Term Care Policy
There is a smoking deal right now,
unbeknownst to the mass of men, on how to
get some pretty good long term care coverage
in an annuity without a lot of hassle and mental
anguish and underwriting etc...
In 2006 Congress signed into law
what was called the the Pension
Protection Act. The law dealt
primarily with the rules of
administration for companies that
funded employee pensions, but there was a portion of
the law (Section 844) that dealt exclusively with annuities and long term care and some new tax arrangements for these types of products.
By January 1, 2010, these new tax laws regarding certain annuities and long term care plans actually became effective.
What this new law provided for was this:
For certain annuity contracts containing the specific language for long term care provisions, any withdrawals from these contracts that were made exclusively for the payment of :
1) long term care premiums, or
2) withdrawals made for actual long term care expenses,
these withdrawals would be 100% federally tax - free.
In addition to this, any benefits received from these contracts would also be 100% federally tax free.
BEAR WITH ME. I KNOW THIS IS HEAVY SLOGGING HERE, WE ARE ALMOST OUT OF THE MUCK.
The Pension Protection Act would allow Insurance Companies to put language into an annuity contract allowing for withdrawal provisions (as well as benefits for) for long term care coverage. As long as the language in the contract met the consumer guidelines of HIPPA, (Health Insurance Portability and Accountability Act), then the policy values can be withdrawn 100% federally tax free for premiums or expenses.
Those HIPPA guidelines, by the way, set standards for consumers and mandate that:
"an individual must be receiving care pursuant to a plan of care prescribed by a licensed health care practitioner, and that the individual be certified by a licensed health care practitioner as being "chronically ill" by either being unable to perform at least 2 activities of daily living or requiring substantial supervision due to a severe cognitive impairment."
In order for the annuity values to qualify for this tax advantaged benefit, there must be language on the initial policy page stating this:
"For taxable years beginning on or after January 1, 2010, this Contract is intended to be a federally qualified Long-Term Care insurance contract under Section 7702B(b) of the Internal Revenue Code of 1986 as amended."
THANKS FOR READING THIS FAR.
I KNOW I HAVE LOST YOU AT THIS POINT.
What does all this gobble-dee-gook mean?
It means that somewhere there is a Company that has written an annuity contract that will automatically offer you as much long term care coverage as you can afford, from your annuity, without any federal taxes when you withdraw the money.
So how can this help me, after all, I am a merely anAmbiguous Annuitant in search of the best annuity that I can find.
Typically annuity owners have purchased annuities for a rainy day ahead, and by rain, I mean serious rain, like declining health. Annuities that have grown in value must be 100% taxed on the gain if withdrawn, (taxable money gets taken out first always), but if you have a Pension Protection Act compliant annuity, 100% of those withdrawals are federally tax free. That is the first good news.
The second good news is that since the policy now offers taxable long term care withdrawal benefits, the Company can also offer extra dollars of long term care protection by adding a rider, for a fee, to continue benefits for coverage for as long as you want.
I am still not getting it. Why should this interest me?
Because you are living longer. And so am I.
And long term care needs will be a reality, in
some form or fashion, whether at home, or in a
facility, for over 50% of the population, for an
unknown duration (average about 3 years).
The price for this coverage is astronomical.
Currrently in California a nursing home is
around $7,000 / month in the year 2014
and MediCare will not pick this up.
Rather than you blow all of your life
savings to pay some expensive nurse to
help you get around your home in your
golden years, use your Pension Protection Act
compliant annuity to augment most, or all, of this cost and save the rest of the money for the family.
Here is how it could work for you.
Suppose you and your spouse have $200,000 saved up in an existing annuity that you bought for $100,000 many years ago. Today, you are 65 years of age. If you need long term care right now, we know that you have $200,000 to use, total. Based on the cost of long term care in a nursing home I just mentioned of $7,000 / month, that money would be gone in 28 months.
If you transfered (a tax free transfer by the way) that annuity to a Pension Protection Act annuity, your $200,000 would be guaranteed in writing to pay a total of $447,876 of long term care coverage. The insurer divides this amount up over 66 months and thus will pay as much as $6,786 each month for 66 months. If you need long term care for the whole 66 months, you have more than doubled your money in addtion to avoiding all those taxes you owed.
The cost, by the way, is only 1.17% annually for the example above, and this cost would simply come off the interest that has been generated in the policy. The cost is guaranteed for the life of the contract also. And it is not hard for a contract to generate a measly 1.17% interest by the way.
The Feds obviously are trying to make it
attractive for you to fund your own long
term care needs.
Finally, these policies are underwritten
right over the phone with a simple
cognitive interview and some general
health questions. No blood, no urine, no
health practitioner visting.
(I mean, yuck, right!)
So, in conclusion:
1) An annuity that is tax free when withdrawn for Long Term Care concerns.
2) An annuity that can double the benefit if you need Long Term Care.
99% of all annuities do not have this language within them to allow these privileges as the law only became effective 4 years ago (in 2010).
But I have an extremely high rated company that was smart enough to jump on this bandwagon before everyone else - and it is the best plan I can think of for you, or for any American family.
Thanks for reading.
Ps) Jump on this now, before it can no longer be available due to ...who knows what.....Good deals go fast!
Check out my blog article on 7% rates of return in 2002...I wish those had stuck around also.