Leveraging Nonqualified Annuities for Tax-Free Long-Term Care Benefits: A Strategy for Couples

Great financial planners know the value of long-term care insurance as it relates to supporting a well thought out financial plan, especially in retirement. Do you want to know how to add favorable tax benefits to that?

In the complex landscape of long-term care insurance, a lesser known strategy is available for clients, particularly those with significant gains in nonqualified annuities. This strategy not only addresses the need for long-term care coverage but also offers substantial tax benefits, revolutionizing the way clients manage their financial assets in the face of health uncertainties.

Find Those Nonqualified Annuities

Nonqualified annuities with considerable gains, often set aside as "emergency funds," are ideal assets for conversion into long-term care (LTC) insurance. This approach is particularly appealing for clients who might not have considered long-term care insurance due to pre-existing health conditions or the daunting underwriting process of traditional LTC policies.

Simplified Underwriting and Tax-Free LTC Benefits

The process of converting these annuities into LTC coverage is streamlined, requiring only "no" answers to four knockout questions and a review of the Medical Information Bureau (MIB) report as well as prescription history. Then, the benefits paid out from the LTC coverage, including the accrued gains from the annuity, are tax-free. This is a significant advantage, made possible by the Pension Protection Act, allowing clients to maximize their existing assets while securing essential coverage.

We have a case where the annuitant has no need for the funds in a very old annuity with a ton of gains and the children of the annuitant does not need the money. The financial planner wanted a way to delay paying taxes on the gains. I gave him a way to possibly never pay taxes on the gains.

Adding a Spouse to the LTC Contract

A unique aspect of this strategy is the ability to include a spouse, who may not be the owner of the existing annuity, into the new LTC contract. This inclusion is transformative, offering couples a dual benefit – comprehensive long-term care coverage for both parties and substantial tax advantages. It's a forward-thinking approach that recognizes the interconnected financial and healthcare needs of partners. In another case, we were able to insure both grandpa and grandma under one policy using grandpa's old annuity. Unfortunately, grandpa died before using any of the long term care benefits. But grandma now have all the benefits of the long term care policy.

Efficient Application Process

The timeframe from application submission to policy issuance remains impressively efficient with this particular strategy, averaging 7-10 days. This expedited process is invaluable for clients seeking prompt coverage and financial repositioning.

The strategy of utilizing nonqualified annuities with substantial gains for tax-free long-term care benefits represents a very effective yet, underutilized strategy in financial planning for health contingencies. Mainly because it requires someone with knowledge and expertise to properly execute the strategy for the client. The added ability to include a non-owner spouse in the LTC contract further enhances this approach, providing comprehensive coverage and tax benefits for couples. This innovative solution opens new doors for clients who previously faced obstacles in securing long-term care insurance, offering a practical and beneficial way to safeguard their future health care needs and financial well-being.

Want to know more? Email our team at contact@peachinsurance.net.

Be on the lookout for my next article - where I will share a few long term care insurance success stories for both the clients and financial planners!

Disclaimer: we are not accountants and do not give tax advice. We are merely sharing the benefits of using this strategy.