A New Tax Law That is Actually
Good For You
Section 844 of the
Pension Protection Act of 2006
Agenda
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Pension Protection Act 2006
Section 844
Ok, this sounds boring.
But the new laws are VERY consumer friendly
and you will gain valuable information today.
Producer Training Requirements
 Required
for all producers selling any LTC insurance in
State – Partnership or Non-Partnership
 Initial
NAIC 8-hour CE course and 4-hours CE every 24
months may be taken online or in person
 Some
states are requiring state-specific Medicaid and
Partnership information in addition to the NAIC 8-hour
CE course.
New Tax Law

PENSION PROTECTION ACT OF 2006

Section 844 of Act specific to benefits found in annuity
products
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Allows for Tax Free Distributions of Gain in Compliant
Deferred Annuities to Fund/Reimburse Long Term Care
Expenses
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Includes All Types of Care
PENSION PROTECTION ACT OF
2006

Withdrawals from Non-Qualified annuities can
be tax free to pay for long term care expenses only
if the current annuity is PPA ’06 compliant.

Withdrawals from Non-Qualified annuities can
be tax free to pay for long term care insurance
premiums even if not PPA ’06 compliant.
Treatment of annuity and life insurance contracts
with a long term care insurance feature
The above is the official title of Section 844
Section 844 has the following benefits:
1) It allows LTCI benefits from annuities and life
insurance policies to pay income tax free
(so long as the benefits are tax qualified).
2) It allows for the 1035 exchange of a life insurance
policy or annuity to a LTCI policy.
3) It allows for the 1035 exchange of an annuity that
does not have a LTCI rider to one that does have
one.
So What Does This Mean?
Suppose you have an annuity worth $150,000 and
the cost basis is $80,000. If you wanted to take
money from the annuity, you pay ordinary
income tax on the gain of $70,000.
But if you take money out to pay for LTC
expenses or insurance, you pay NO TAXES. It
saves you the taxes of the $70,000 gain. That is
perhaps a $19,000 savings.
What’s the Catch?

Most existing annuities do not have LTC
provisions in the wording of the contract
therefore would not qualify for tax free
withdrawals. An annuity must be PPA06
certified for the withdrawals to be tax free.
Few carriers have the proper wording in
their existing contracts.
Exchanging funds
DEFERRED ANNUITY TO LTC 1035
TRANSFER AUTHORIZATION
• Only individual-owned annuity to individual-owned LTC policy or jointowned annuity to shared LTC policy exchanges are permitted. The
proposed/current LTC insured(s) must be the owner(s) of the annuity.
• Only annual mode is available with the 1035 partial exchanges program.
I/We understand that the above requested transfer of funds from my/our
existing annuity contract will be handled as 1035 exchange(s). I/We
hereby authorize carrier to process the required exchange(s) on a one
time or recurring annual basis, withdrawing necessary funds from the
above designated annuity contract(s) to fund the premiums of the Long
Term Care Insurance Policy referenced above.
1035x to a LTC policy
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Existing annuity does NOT have to be PPA’06
compliant.
LTC policy should be on annual mode.
1035x is for the annual LTC premium amount.
Done each year.
Annuity carrier should provide a 1099 but coded
LTC so tax free.
Check with annuity carrier if compliant
Annuities

ANNUITY LANDSCAPE
 150
Billion Annual Sales
 1.8
Trillion in In-Force Annuities (that’s
$1,800,000,000,000)
 Deferred
Annuity purchasers are attracted by
 Safety
 Favorable
tax treatment
 Guaranteed
 Avoiding
income
probate
Do you have an annuity?

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1)
2)
According to an industry study:
83% of non-qualified annuity holders never
touch the funds.
When asked why they hold an annuity the two
most common answers are
For emergencies
To pass to my spouse or family
Annuities

ANNUITY LANDSCAPE – WHAT’S
REALLY HAPPENING NOW?
 How
many are annuitized?
 How
do annuity owners plan to fund medical
emergencies?
 How
do we sell annuities in a low interest rate
environment
Long Term Care Insurance

LONG TERM CARE LANDSCAPE
Long Term Care Insurance is a “good idea”
95% of people age 65 or older are not buying it
Recent economy – do clients want to pay
premiums?
More and more boomers every year
Whether consciously or sub-consciously: clients are
self-insuring
LTCI Most Common Objections
1)
2)
3)
4)
Too expensive
What if I never use the benefits?
Insurance companies can raise rates on me
I’ve got enough money to pay on my own
Linked Benefits
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WHAT ARE LINKED BENEFITS?

Single Premium Products

Some Annual Premium Paying Products Available

Annuities, Universal Life and Whole Life

Better Leveraging Assets for These Benefits
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Non-Qualified or Qualified funds

NOT LTC Partnership Approved
Linked Benefits
HOW DO LINKED BENEFIT PRODUCTS WORK?
 Creating
tax advantaged withdrawals from
annuities and life insurance to reimburse or fund
long term care events
 Doubling,
tripling or creating a lifetime of
unlimited benefits
 Withdrawing
from accumulation value first, then
extending benefits
Going on Claim
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Similar triggers to traditional LTCI policies
Can’t perform 2 of 6 ADLs
Cognitively Impaired
Doctor recommendation
Most are reimbursement some indemnity
Daily or Monthly Benefit Payments
TAX FREE BENEFITS
Going on Claim
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Tapping into death benefit or annuity
accumulation value first, then rider kicks in and
provides additional pool of money.
Premium paying policies usually tapping into
death benefit only and no additional pool of
money.
TAX FREE BENEFITS
Linked Benefits

Life insurance with LTC benefits
Whole life or Universal life base
Single life or second-to-die
Single premium or on going premiums

Fixed annuities with LTC benefits
Accelerated Benefit Riders
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Commonly called Chronical Illness rider.
Similar triggers for a LTC claim.
Usually no additional pool of money…just death
benefit.
No health license or additional CE required.
UL or Whole Life product
Premium Flexibility- Lifetime payment or single
pay
Product Samples
Without mentioning specific carriers,
here are a few samples of how linked benefit
products work.
Life/LTC Linked Benefits
Female age 60 non-tobacco widowed
$750,000 in assets such as CDs, stocks, annuities, IRAs,
proceeds from husband’s life insurance…
Concerned about LTC needs.
$100,000 repositioned to a life/LTC linked benefit.
Comparing Products Life/LTC
Female age 60 standard NT $100,000
16th Pres. Life
Guard Money
Life Insurance
$193,296
LTC monthly
benefit
LTC duration
Total LTC
benefit
Return of
premium
Big Sig Life
Life Caring
Good Things to Life
$202,962
$209,520
$8,054
$8,457
$8,730
6 years
6 years
6 years
$579,888
$608,886
$628,560
100%
100%
100%
TLC
Annuity/LTC
Wild Kingdom Life
Elimination Period
60 months
72 months
$102,040
$0
$0
$123,175
$369,525
50 States Life
7 days
60 months
$101,023
$254,414
$142
$110,324
$296,752
$168.73
$151,830
$455,491
$162.13
$120,704
$349,328
$207.99
$194.06
Benefit Period
Annuity Value Yr 1
LTC Value Yr 1
LTC Daily Benefit Yr 1
Annuity Value Yr 10
LTC Value Yr 10
LTC Daily Benefit Yr 10
Annuity Value Yr 20
LTC Value Yr 20
LTC Daily Benefit Yr 20
What about qualified money?
One carrier has a second-to-die contract.
Transfer IRA to an IRA annuity
1/20th is withdrawn each year – taxable
Withdrawal is used to pay life premiums
Life contract has a LTC rider
Can include spouse
TAX FREE withdrawals for LTC needs
So What Do I Do?
Go through your existing book of business
Identify clients who have NQ annuities, CDs, have
interest in LTC insurance, are between 50-80,
high cash values in life insurance, have larger
gain in their existing annuities…
Then what do you do?
So What Do I Do?
CALL THEM!
Sample approach
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“Dorothy, there has been a tax law change that I
think may have a positive affect for you. I’d like
to schedule a time to go over this with you.”
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“Frank, I know you have that old annuity with
XYZ Company. Thanks to a tax law change, I
may be able to enhance the benefits of your
annuity.”
Sample Approach
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“Chuck, I know you are not a fan of long term
care insurance but thanks to a tax law change, I
would like to share with you a couple ideas or
options that may be in your best interest.”
So What Do I Do?
1)
Review current non-qualified annuity. Is
it PPA’06 compliant?
2)
Consider repositioning to an annuity that
allows tax free withdrawals to reimburse
LTC expenses. Could save $thousands in
taxes.
So What Do I Do?
1)
Do you have a long term care insurance
policy? How are you paying premiums?
2)
Consider a 1035 exchange from your existing
annuity to have tax free dollars pay the
premiums.
3)
Call your current annuity company to see if
they will allow for 1035x.
How to approach a prospect
http://portal.sliderocket.com/AGERJ/LinkedBenefits-consumer
This is a powerpoint with audio that you can email
to prospects or clients introducing them to
linked benefits.
UNDERWRITING
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Linked Benefit products usually no paramed
Phone interview testing for cognitive ability
TAKE IT SERIOUSLY
word recall
Often NO medical records needed
Contracts issued within days
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Accelerated Riders usually full underwriting
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LINKED BENEFITS
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SOMETHING NEW TO TALK TO
CLIENTS ABOUT
TAX FREE BENFITS FOR LTC NEEDS
AVOID GAIN IN NQ ANNUITIES
LEVERAGE DOLLARS AND CREATE
MORE
KEEP MORE $ UNDER MANAGEMENT
Questions?
Have questions?
Contact me via email.
mikes@idcnet.com
1-800-657-0736
Could present at your state or local.