“Millions of Americans make annuities part of their retirement strategy, and that’s smart planning,” states Slome, head of the long-term care insurance advocacy organization. “A significant percentage of non-qualified annuity owners designate this asset as something they’ll use in case of an emergency health care cost. Certainly, long-term care is included in their thinking.”

The problem, according to Slome, is the fact that proceeds withdrawn from non-qualified annuities can become taxable income. “The first dollars withdrawn are the gain and those dollars can be taxable,” Slome explains. “But with some smart planning, that tax risk can be avoided.”

The long-term care insurance expert recently explained the strategy to a group of insurance agents focused on the senior market. “Today, there are a few non-qualified annuities that meet IRS regulations so that all proceeds withdrawn for long-term care costs are not taxable,” Slome explains. “That can be a significant advantage to the annuity owner.”

In addition, Slome pointed out an additional potential benefit offered by some of the available products. “They will provide a multiple that significantly increases the available benefit pool of dollars available to pay for long-term care costs. Instead of say $180,000 in potentially available cash, a couple could have $400,000 or more.”

Slome shared that insurance agents would benefit by helping clients with existing annuities consider a 1035 exchange into one of the newer annuities with long-term care benefit policies. “There are always pros and cons to starting anew,” Slome admits. “But, for the seniors who has no long-term care insurance in place and owns a non-qualified annuity, this can be an excellent planning strategy.”

The American Association recently posted additional information regarding the annuity planning strategy. To learn more, go to https://www.aaltci.org/tax-tips-annuity-ltc/.

The American Association for Long-Term Care Insurance advocates for the importance of planning for the real risk of needing long-term care. The organization posts relevant long-term care insurance statistics and information such as the 2024 Long-Term Care Insurance Price Index and other statistics and data at https://www.aaltci.org/long-term-care-insurance/learning-center/ltcfacts-2024.php.

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New 1035 Exchange Guide

Millions of Americans who have existing annuity or life insurance policies can benefit from reading a new guide explaining the benefits of a 1035 exchange.

“Few individuals are familiar with Section 1035 of the Internal Revenue Code that allows an individual to repurpose an existing annuity of life insurance policy to one that includes tax-advantaged long-term care benefits,” explains Jesse Slome, director of the American Association for Long-Term Care Insurance (AALTCI). The national organization has just released the Guide To Long-Term Care Planning Using 1035 Exchanges.

The 24-page guide, accessible online, explores the basics of how 1035 exchanges can benefit individuals and includes several real-life scenarios depicting the advantages of converting existing annuities or life insurance policies. “The Pension Protection Act (PPA) enacted by Congress encourages individuals to plan for the very real risk of needing long-term care (LTC), and Section 1035 exchanges are one of today’s significant planning opportunities available,” Slome shares.

“The PPA provides meaningful tax- and long-term care planning advantages to consumers,” Slome notes. “Funds withdrawn from a traditional nonqualified annuity can be used to pay for long-term care expenses, but there will likely be tax consequences. A simple 1035 exchange to a PPA-approved linked-benefit annuity can provide 100-percent income tax-free withdrawals to pay for LTC costs.”

One of the leading providers of linked-benefit annuity and life insurance long-term care protection says many people aren’t aware of the tax implications of their current strategies.

“Americans have nearly $3 trillion in fixed and variable annuities set aside as part of their retirement planning strategy,” reports Chris Coudret, vice president and chief distribution officer at OneAmerica^®. “Many of these individuals could benefit by taking advantage of a 1035 exchange, which could offer tax benefits as well as provide long-term care benefits, should they be needed. This new guide can be a tremendous help to financial professionals looking for information and resources for their client conversations.”

OneAmerica will make copies of the guide available to insurance and financial professionals.

Free Access to Read The 1035 Exchange Guide Online

“If you are 50 or older and you have an annuity or a life insurance policy, a 1035 exchange could be the ideal way to plan for a future long-term care need,” Slome suggests. “You maintain the benefits you currently have while adding some tax advantages.  For couples, there is even the possibility of using one policy to provide tax-free long-term care benefits for both spouses.”

To read the 1035 exchange guide online visit the American Association for Long-Term Care Insurance’s website at www.aaltci.org/1035-exchanges.

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Established in 1998, the American Association for Long-Term Care Insurance advocates for the importance of LTC planning and supports insurance professionals nationwide.  Jesse Slome, founder and executive director of the organization, is a leading consumer advocate and author of numerous consumer and professional guides focused on retirement and insurance planning that have been published by governmental agencies and private organizations.

OneAmerica^® is the marketing name for the companies of OneAmerica. AALTCI is not an affiliate of the companies of OneAmerica. Provided content is for overview and informational purposes only and is not intended as tax, legal, fiduciary, or investment advice. Before replacing existing life insurance or annuities all factors should be weighed to determine suitability.

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New 1035 Exchange Guide

A new guide published by the American Association for Long-Term Care Insurance (AALTCI) kicks off a national campaign to heighten awareness for the use of 1035 exchanges for effective and tax-advantaged LTC planning.

The AALTCI Guide To Long-Term Care Planning Using Using IRS Approved Exchanges formally launches the national consumer and insurance-focused campaign.

“Section 1035 exchanges are one of least known planning strategies,” declares Jesse Slome, executive director of AALTCI. “Every insurance agent and financial professional who has prospects or clients in their 50s, 60s and 70s are going to need to familiarize themselves with the significant advantages they provide.”

“Americans have $2.8 trillion in fixed and variable annuities and we know far too few older adults have a financial strategy to deal with the real risk of needing long-term care,” Slome reports. “Many of these individuals could benefit by taking advantage of a 1035 exchange; repurposing an existing annuity into one that continues to accrue but also can provide.”

To access the new guide online visit the American Association for Long-Term Care Insurance’s website at www.aaltci.org/1035-exchanges.

MESSAGE TO CONSUMERS:  The Association has made this informational guide available online.  You can read it from any device and NO SIGN-IN information is required to access and read the guide.  If you find the information of value we encourage you to discuss with your current insurance or financial professional.  Or, if you prefer, complete the online form (also on the web page) and we will connect you with one knowledgeable independent professional familiar with how these exchanges work as a benefit for consumers.

MESSAGE TO INSURANCE AND FINANCIAL PROFESSIONALS:   You may also access and read the guide online.  It can also be downloaded.   As the Association moves forward on it’s awareness efforts we will decide next steps.  Watch the Association’s website for more details.

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“A 1035 exchange defers the internal build up of gains associated with the life insurance or annuity policies that would be taxable events,” explains Jesse Slome, executive director of the American Association for Long-Term Care Insurance.  “Using a 1035 exchange to purchase long term care insurance protection effectively ensures that the taxable gain disappears entirely.”   While the Association does not offer tax or legal advice the organization has published information to help educate more consumers about the tax advantaged planning technique.

“Individuals with an existing life insurance or annuity policy with a gain may wish to look into the advantages of a 1035 exchange,” Slome explains.   “Actually, a partial 1035 exchange is more common today,” the leading long term care insurance expert notes.  This involves using the 1035 exchange to pay the annual long term care insurance premium.

“Because not all insurance companies accept 1035 exchanges and because insurance policies can vary significantly from one insurance company to another, we strongly suggest consumers work with a knowledgeable professional,” Slome advises.  “You would hate to find out what you thought would be a tax free event actually is now taxable or that you are paying much more than you might have by selecting a different top-rated insurer.”

Under the new rules individuals can complete a “like-kind” exchange from an insurance or annuity policy directly to a qualified long-term care insurance policy. The new law stipulates that the long term care insurance policy must be a “tax qualified” policy as defined under IRC Section 7702B.  “Today, the vast majority of policies meet these criteria,” Slome adds.   The rules also stipulate that the annuity policy must be non-qualified annuity.  These are generally defined as annuities purchased with after-tax funds.

Established in 1998 as a non-profit trade group, the Los Angeles, California-based American Association for Long Term Care Insurance advocates for the importance of planning for long term care and supports insurance and financial professionals who market LTC insurance.  To learn more about 1035 exchanges for long term care insurance costs call the organization’s offices at (818) 597-3227 or visit the Association’s website.

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“Asset based or linked products are experiencing growth as they are highly suitable for a very specific consumer,” states Jesse Slome, AALTCI’s executive director.  “Financial planners and investment professionals who may not like the more complex nature of traditional long-term care insurance policies especially find them easier to sell.”

According to the Association’s annual study of new policy sales, more than half (55.7%  Female – 51.5% Male) of new life+LTC policies were purchased by individuals age 65 or older.  Just over a third (34.0% Female – 37.1% Male) were purchased by individuals between ages 55 and 64.

“One of the features of linked products that consumers find attractive is the principle that premiums are not ‘lost’ if the individual never has a qualifying long-term care need,” Slome explains.  “To make coverage meaningful however one needs to make a significant single premium contribution for each covered life.”   For 2010, the initial single premium face amount of policies purchased was $100,000 or greater for two thirds (66.2%) of new policies. 

The Association study found that the vast majority (95.3%) of new Life+LTC policies issued did not include a benefit increase option that bumped up available benefits to keep pace with inflationary growth of costs.  By comparison, the Association’s study of 2010 traditional individual long-term care insurance policy sales, found that 94.5 percent included some form of growth option.

The complete findings are contained in the Association’s 2011 Long-Term Care Insurance Sourcebook.  Founded in 1998, the American Association for Long-Term Care Insurance is the national trade organization established to educate both consumers and financial professionals about the importance of long-term care planning.

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