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Sales of long-term care annuities, a kind of insurance
against long-term care, have been declining this year. But industry
watchers expect that trend to reverse in 2010, when new federal rules
kick in. Starting next January, no federal income tax will be due on the
proceeds of up to two to three times an annuity’s account value if
used to pay for long-term care, thanks to the Pension Protection Act of
2006.
“The message in favor of combination plans is simple, and to many
buyers more compelling,” says Carl Friedrich, Milliman consulting
actuary and principal. “There are potentially significant tax
advantages to the pay out of annuity values, including gains in those
contracts, as tax-free long-term care benefits, as allowed under the
Pension Protection Act of 2006. In addition, people don’t like the
idea of paying level premiums into a standalone long-term care insurance
policy and never getting money out of the contract if they don’t need
long-term care.”
Estimated sales of combination life and single premium annuity
combination plan long-term care products tallied $660 million at
year-end 2008 for first-year premiums, according to Milliman, Seattle.
This compares with $600 million in new first-year premiums of mostly
annual premium standalone long-term care insurance. Overall, long-term
care sales dropped 32 percent in the first quarter of 2009 and 24
percent in the fourth quarter of 2008, according to LIMRA, Windsor,
Conn. Karen Fisherkeller, LIMRA associate analyst, cites the recession,
rate increases, insurance company rating downgrades and consumer
resistance to long-term care planning, in general.
Long-term care, largely uncovered by Medicare, refers to medical and
non-medical care for those with a chronic illness or disability. It
covers support services for things like dressing, bathing, and using the
bathroom at home, in the community, in assisted living or in nursing
homes. But a single-premium fixed annuity with a long-term care rider
may cost less than a standalone long-term care policy. Plus, if
policyholders don’t ever need to tap their policy, at least they still
can tap the annuity’s cash.
Major insurers issuing combination annuity-long-term care products
include Genworth, John Hancock, United of Omaha, Conseco, StateLife/One
America and Guarantee Income Life. Allianz Life also may launch a
combination product, a company spokesperson says.
Long-term care insurance in general is not an easy sale. But the risks
it protects against are rising. Today, the average cost of a nursing
home is almost $80,000 annually. And inflation was expected to drive it
into the six figures in years to come. The number of older people is
expected to increase dramatically from 2010 to 2030. Meanwhile, the
lifetime probability of becoming disabled in at least two activities of
daily living or being cognitively impaired is 68 percent for people age
65 and older, according to a report by the American Association of
Long-Term Care Insurance.
“There are roughly 140 million people over the age of 40 and less than
10 million have long-term care,” says Terence Holahan, assistant
director of long-term care at Northwestern Long Term Care Insurance Co,
Milwaukee. “It is a large unfunded open liability.”
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