The Pension Protection Act of 2006 (PPA)

Q: What impact does the PPA have on long term care insurance funding starting 1/1/2010?
A: On 1/1/2010, the following important provisions go into effect that could have a large impact in planning for a long term care (LTC) event.

  • Linked Benefit Annuity Products:
    Benefits received for covered long term care expenses are tax-free and internal LTC rider charges are not taxed as distributions.
  • Linked Benefit Life Insurance Products:
    Internal LTC rider charges are not taxed as distributions.
  • Traditional Long Term Care Insurance (LTCI)
    New 1035 exchange rules provide tax free options to fund a traditional LTCI policy.

Q: What is Tax Qualified Long Term Care Insurance?
A: Congress passed the Health Insurance Portability and Accountability Act in 1996 to ensure that long term care insurance policies receive favorable tax treatment if they meet certain standards.

Tax-qualified long term care insurance benefits are federal income tax free and premiums are eligible for income tax deduction, subject to certain limitations.

Q: What are the Key Changes to Linked Benefit Annuity products?
Key Changes Effective 1/1/2010:

  • Tax qualified LTC insurance riders under a non-qualified Linked Benefit annuity contract will be treated as a separate contract. As a result, tax qualified LTC benefits from these products are tax free.
  • LTC insurance rider charges taken from the Linked Benefit annuity account value are not taxable distributions. However, these charges reduce investment in the contract, but not below zero. This may have tax implications if the contract is surrendered, or at the death of the owner.

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