12/2009For agent/broker use only. Pension Protection Act & LTC Planning Bill Comfort, CLTC Comfort...

12/2009For agent/broker use only.

Pension Protection Act & LTC Planning

Bill Comfort, CLTC

Comfort Assurance Group, LLC

St. Louis, MO


PPA ’06 Generally

Pension reform

LTCi for retired public safety officers Linked-benefit LTC charges 1035 Exchange rules

New opportunities to fund traditional LTCi


LTCi for Retired Public Safety Officers Effective January 1, 2007 Public agency - police, sheriff, fire,

rescue, ambulance, DAs, investigators, forestry

“Qualified Health Insurance Premiums” (including LTCi) paid from retirement funds tax-free up to $3,000/year.Must be direct from plan to carrier


Linked-Benefit LTCi

Life insurance or annuity with INTERNAL LTCi benefits

LTCi benefits must have HIPAA tax-qualified definitions

Before January 1, 2010: LTCi benefit payments from life-linked LTCi

have been tax-free, BUT internal LTCi charges taxable

LTC benefit payments from annuity-linked LTCi have been taxable


Life-Linked LTCi

$100,000 single-premium

$200,000 death benefit

$400,000 LTCi benefit

Cash value with minimum guarantee plus interest earnings

Life and LTCi risk charges deducted internally from cash value

Benefit if surrender, die or LTC


Life-Linked LTCi – Pre 2010




LTCi benefits tax-free Internal LTCi risk charges taxable

E.g., $1,000 charged against CV for $300,000 LTCi generated a 1099

33% tax bracket = $333 in additional taxes


Life-Linked LTCi – 1/1/2010




LTCi benefits tax-free Internal LTCi risk charge tax-free (no 1099)

BUT reduces the basis• Only impacts tax on surrender• Death & LTCi benefits remain tax-free

E.g., $1,000 cost reduces basis to $99,000


Life-Linked LTCi – 1/1/2010




PLANNING OPPORTUNITY: Self-insuring with leverage Additional benefits at death if care not

needed Negatives:

Life & LTCi costs deducted from CV


Annuity-Linked LTCi - Pre 2010

$100,000 single premium$300,000 LTCi benefit

Internal risk costs taxable as income withdrawal – basis + gain

AND LTCi benefits taxable as income withdrawal

– basis + gain Excess LTCi benefit treated as gain


Annuity-Linked LTCi – 1/1/2010

$100,000 single premium


Internal risk costs tax-free But reduce the basis as with life-linked LTCi

LTCi benefits tax-free LTCi benefits treated as a separate policy

• (PENDING ISSUE)


Annuity-Linked LTCi – 1/1/2010

$100,000 single premium

$300,000 LTCi benefit PLANNING OPPORTUNITY:

Less CV than a traditional annuity due to internal LTCi charges

More money without taxes compared to a traditional annuity

A self-funding alternative Negative:

Higher taxes at death if no LTC


1035 Exchange

Tax-free exchanges allowed from:Life Insurance to Life InsuranceAnnuity to AnnuityLife Insurance to AnnuityNOT ALLOWED: Annuity to Life Ins

NO changes by PPA

Beneficial to fund Linked-Benefit LTCi


1035 Exchange - NEW

Life Insurance to LTC Insurance Annuity to LTC Insurance

Funding TRADITIONAL LTC Insurance

Complete 1035x must be to single-pay LTCi

BUT Partial 1035x allowed!


1035 Exchange to LTCi

Partial 1035xMust be carrier to carrierOwner must be the same

• Single owner annuity can not fund joint LTCi

Allowed, but insurance companies must be willing to administer

Tax-free and reduces original contract proportionally – basis + gain

Annuity must be non-qualified


1035 Exchange – SPIA

Income from a Single Premium Immediate AnnuityAssigned to LTCi carrier under 1035xTax-free income payment


PPA LTCi Opportunities

Creating additional benefits for self-insurers without tax consequencesLife-linkedAnnuity-linked

New funding sources for traditional LTCiTax-free 1035x from life or annuity CVEven partial exchanges



Non-qualified deferred annuityPartial 1035x to fund LTCi

• Use existing annuity• May be able to avoid surrender charges if free

withdrawals

• New annuity• New $ then 1035x to LTCi• 1035x into annuity with 1035x to LTCi• Be aware of surrender charges



SPIANew $ to fund SPIA1035x into SPIA from life or annuitySPIA income 1035x to LTCiGuarantees income to fund LTCi

premiums

CAUTION:Future rate increase possibility


QUESTIONS?

12/2009For agent/broker use only. Pension Protection Act & LTC Planning Bill Comfort, CLTC Comfort...

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Transcript of 12/2009For agent/broker use only. Pension Protection Act & LTC Planning Bill Comfort, CLTC Comfort...