We would love to hear from you. Click on the ‘Contact Us’ link to the right and choose your favorite way to reach-out!

wscdsdc

media/speaking contact

Jamie Johnson

business contact

Victoria Peterson

Contact Us

855.ask.wink

Close [x]
pattern

Industry News

Categories

  • Industry Articles (16,574)
  • Industry Conferences (3)
  • Industry Job Openings (37)
  • Negative Media (138)
  • Positive Media (73)
  • Sheryl's Articles (618)
  • Sheryl's Blogs (176)
  • Wink's Articles (242)
  • Wink's Blogs (258)
  • Wink's Press Releases (93)
  • Blog Archives

  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • November 2010
  • October 2010
  • September 2010
  • August 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010
  • March 2010
  • February 2010
  • January 2010
  • December 2009
  • November 2009
  • October 2009
  • August 2009
  • June 2009
  • May 2009
  • April 2009
  • March 2009
  • November 2008
  • May 2008
  • February 2008
  • August 2006
  • Annuities With LTC: 2 Great Things That Go Great Together

    October 1, 2014 by Linda Koco

    Annuities that offer long-term care riders don’t get a lot of attention in industry news. But brokerage general agent Michael Smith said clients definitely are interested, and the product does sell when the fit is right.

    For example, one client had more than $200,000 sitting in a money market account “doing nothing.” This was not money the client needed for income purposes, Smith said, so the recommendation was to leverage a portion of the funds by putting it into an annuity with a long-term care rider.

    This way, if the policyowner ever needs long-term care, the policy will pay out the annuity benefits for care-related services free of federal taxes, he said. Once that money is exhausted, the rider’s pool of LTC benefits will start making the long-term care payments, also tax-free.

    The pool of long-term care benefits in these policies can be substantial. “Depending on the contract selected, it can be double or triple the account value,” said Smith, who is president of Milwaukee-based CPS Horizon Financial Group.
    The payout period for the care benefits can vary. Depending on what the client wants, a policy can be set up to pay long-term care benefits over several years or even for the client’s lifetime.

    However, he said, the pool value is available only for care-related payouts. “If the policyholder never uses the annuity’s long-term care benefits, the annuity functions like, and is taxed like, a traditional fixed annuity.”

    Smith credits the Pension Protection Act (PPA) of 2006 with breathing life into these products. In 2010, a provision of the act took effect that makes the LTC benefits in what are now called PPA-friendly annuities payable on a federal tax-free basis. PPA-friendly annuities are ones that are specifically designed to meet the requirements of the law.

    Smith’s brokerage represents three or four fixed annuity carriers that currently offer PPA-friendly fixed annuities. (He does not work with variable annuities.) Now, owners of older annuities can, and do, make 1035 exchanges into these
    products in order to get tax-free long-term care benefits.

    Some Considerations
    Customers should know that these contracts don’t provide much growth, Smith emphasized. For example, at one company, a contract opened with an initial account value of $100,000 may grow only to an accumulation value of $106,000 at the end of policy year five on a non-guaranteed basis (nearly $102,000 on a guaranteed basis).

    The modest growth reflects the fact that the cost of the rider’s coverage is factored right into the annuity’s pricing. That is a function of the product being designed for long-term care, Smith said.

    So, if a client is looking primarily for growth, this is not the right product.

    It’s also not the right product if the person cannot qualify for the long-term care underwriting. “Applicants can, and have been, denied,” Smith said. For instance, for one product, reasons for declination include confinement to a bed, diagnosis with a disease like dementia or Parkinson’s disease, or use of certain medications such as Aricept or Exelon.

    Annuity producers who typically work with traditional fixed annuities, which are not underwritten, will therefore need to recalibrate their presentations when selling the PPA-friendly annuities. However, the process may be simplified if the carrier uses tele-underwriters to ask the underwriting questions.

    Another consideration is the money the client has available. First, the available funds should not be money the person needs for everyday living, Smith said. Even then, he recommends putting only a portion of the funds into the annuity.
    “It is my opinion that clients are best off if they have $70,000 or more to deposit,” he added. It’s not required, he said, but a larger initial deposit creates a much larger long-term care benefit down the road when it’s needed.

    For example, he pointed to an illustration for a 60-year-old woman who deposits $100,000 into a PPA-friendly annuity. “By age 70, her total amount of tax-free long-term care benefit will be $310,000 – not bad for a $100,000 deposit,” he said. Her monthly long-term care benefit at that age would be nearly $5,200. The minimum length of time the claim would be paid is 60 months.

    By comparison, if the same woman deposits only $43,000 at age 60, her long-term care balance would come only to about $134,000 at age 70, and her monthly benefit at that age would be about $2,200.

    The above values are rounded and shown on a non-guaranteed basis. The guaranteed values in both instances would be lower, but the same pattern would occur.

    Another consideration: Determine what types of claims will qualify for benefits. In general, a person must be cognitively impaired or be unable to perform two or more activities of daily living (ADLs) – bathing, dressing, etc. – to qualify, Smith said. “But under the definition of a chronic care rider, it is possible to be unable to perform two ADLs and still not qualify for benefits.”

    For example, assume that a man falls from a ladder while hanging holiday lights. He breaks some bones and that puts him into casts. “He is laid up and unable to perform two or more ADLs, but under a chronic care rider, the man would not qualify for benefits because he is expected to recover when the bones heal,” Smith said. “The man’s expected recovery will prevent the condition from being classified as chronic.

    “By contrast, under a true long-term care rider, the claim would likely qualify, due to the definitions in the rider, assuming any elimination period is met.”

    Both types of riders are good, he added, but the producer needs to know the difference, and how the particular rider fits with the client’s needs.

    PPA-friendly annuities are still relatively new, but Smith considers them to be a very good choice for the right customer. “Some policyowners have already gone on claim, and one is doing so right now,” he said.

    Originally Posted at InsuranceNewsNet Magazine on October 2014 by Linda Koco.

    Categories: Industry Articles
    currency