The February 2010 issue of [Best’s Review] has an interesting article, written by Lori Chordas, on LTC Annuities. I have heard a lot of chatter about these products over the last few months as we approached and then passed the 1/1/2010 Pension Protection Act changes. The change in the tax treatment of withdrawals from annuity account values when used to pay LTC premiums, makes these combo products more desirable for consumers now than they have been previously.
Because there is no taxable event when the premiums are deducted from the annuity’s value, the cost of the LTC premiums is effectively lowered. Chordas quotes Scott Goldberg of Bankers LIfe and Casualty Co., on two advantages over stand-alone policies: 1) long-term care annuities lower the cost of long-term care insurance and, 2) they remove the ‘use it or lose it’ fear with respect to the annual LTC premiums.
Chordas’ article provides general descriptions of three currently marketed products, each with unique design features; those of OneAmerica, Bankers Life and Casualty Company, and Mutual of Omaha. Although different in the design details, each of the products appears to achieve the goal of keeping the actual cost of LTC down. There was little discussion of the fee structure of the products, to know how those might impact performance, but all seemed to have the potential to achieve the combo product goals. Ms. Chordas cites LIMRA sales research showing that LTC sales have fallen considerably from the 580,000 policies sold in 2002. It will be interesting to see how the various products that are in development come to market and whether they are able to meet the challenges that stand-alone LTC policies have faced.
Of course I would love to have the opportunity to be involved in the development and filing of these new and innovative products as companies bring them to market, but even if I am not, I look forward to seeing how they develop and what their impact is when they get out there on the street.