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 “Funds withdrawn from a traditional nonqualified annuity can be used to pay for long-term care expenses, but there will likely be tax consequences.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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1035 exchange for long-term care insurance planning

To help create awareness for the tax benefits of using 1035 exchanges as part of long-term care insurance planning, a national educational campaign is being planned by the American Association for Long-Term Care Insurance.

“There are millions of Americans with trillions of dollars of life insurance that could be better used to pay for the very real risk of needing long-term care,” states Jesse Slome, director of the American Association for Long-Term Care Insurance (AALTCI).   The Association director shared plans to create an awareness and educational effort focused on using 1035 exchanges for the purpose of turning unneeded policies into valuable long-term care insurance funding vehicles.

“I think 1035 exchanges for long term care insurance could be one of the best kept financial planning secrets today for the millions of aging Americans who bought life insurance when they had children to protect,” Slome shared.  “The kids have grown and are now gainfully employed.  Now mom and dad need to consider long-term care planning so they don’t turn their adult children into unpaid caregivers.”

The Association director plans to undertake a multi-year educational campaign targeting both consumers and insurance professionals.  “The goal is to familiarize consumers with what 1035 exchanges are and how they work and can provide a significant tax-advantaged benefit,” Slome adds.  “We’ll obviously be educating insurance agents as part of the effort as we are looking for seasoned pros who can serve as resources when interested consumers call.”

As an initial step in the process, the Association established a new 1035 exchange information website at www.1035exchangeinfo.com.   “Consumers already have made the American Association’s website the number-one resource for long-term care insurance costs and information,” Slome acknowledged.  “We wanted a dedicated site where people could find specific information just on this topic.”

The American Association for Long-Term Care Insurance website offers comprehensive consumer information and no-cost access to obtain long-term care insurance costs from leading independent insurance specialists.   To learn more about long term care planning go to www.aaltci.org or call 818-597-3227.

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“The differences can amount to tens and even hundreds of thousands of dollars of future benefits,” declares Jesse Slome, executive director of the American Association for Long Term Care Insurance.  “People wrongly assume these policies are virtually identical when nothing could be further from the truth.”

While asset based long term care insurance products offering a combination of life insurance and long term care benefits have been around for many years, numerous new policies have been or are being introduced Slome acknowledges.  “Roughly 90,000 of these asset based LTC policies were sold in 2012,” Slome reports.  That compares to roughly 330,000 traditional long term care insurance policies.

Slome shared ways to judge if comparing policies is worthwhile.  “If you are married and plan to buy policies for both husband and wife, there can be considerable differences in the future benefit amount from one insurer to the next,” Slome shared.  “Many of these policies today are marketed by financial professionals who only offer one or two policies and are not as familiar with the important differences.”

Future guarantees can vary among different asset based LTC products Slome notes.  “In future years you don’t want to find out that what you thought was guaranteed isn’t,” Slome says.   “All of these small but very important factors make it increasingly important to compare because you only purchase these policies one time.”

The Association compiles a listing of specialists experienced in asset based long term care insurance.  “Few of the insurance professionals who help advise consumers about traditional long term care insurance planning and costs really are knowledgeable about the nuances of these newer asset-based LTC products,” Slome concludes.    To connect with a specialist in this area call the organization at 818-597-3227 or visiting their website.

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2014 Long Term Care Insurance Sourcebook contains latest data and statistics

Los Angeles; August 1, 2013 –  Universal life insurance policies with optional long term care insurance are gaining consumer interest according to new research by the American Association for Long-Term Care Insurance.

“We are definitely seeing heightened interest among consumers with available savings that they can leverage to protect against the high costs associated with needing long term care,” explained Jesse Slome, executive Director of the American Association for Long Term Care Insurance.  “These policies are not for everyone and there can be significant differences between policies being offered today.”

According to a study by the Association more than half of buyers of life insurance with long term care benefit option policies were under age 65.  “Some companies have imposed age restrictions on these policies and that could be pushing down the age of average buyers,” Slome explained.  “It’s also likely that more stockbrokers and financial planners are starting to recommend these products to their younger clientele.”

A growing number of companies now offer life insurance policies that offer long term care benefits according to AALTCI.  “You used to have one or two major players but over the past few years several large insurance companies have introduced new products,” Slome noted.  “Consumers have the misperception that all policies are identical but we see some important differences that can vary.  The difference in future benefits can be quite significant.”

The AALTCI study reports that 56 percent of buyers in 2012 were age 64 or less.  The complete findings of the study will be included in the 2014 Long Term Care Insurance Sourcebook a compendium of industry research published by the trade group.  Copies of the Sourcebook cost $99.

To request a free, no-obligation policy benefit comparison from a designated life plus long-term care insurance specialist who is a member of the Association, call 818-597-3227.

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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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“There are many ways Americans can plan for the eventual need for long term care and our role is to educate consumers about their choices and make it as easy as possible to pick the best one,” says Jesse Slome, executive director of the American Association for Long Term Care Insurance.  The industry trade group supports insurance agents and financial professionals who market solutions to clients.

Life insurance policies that pay long term care benefits when a person meets qualifying conditions have existed for a number of years as have annuity contracts that offer this option.  “Lately we are seeing riders to life insurance policies that appear to be the same but insurers offering them sometimes don’t have any long term care insurance experience so we want to make sure they are designed to really benefit consumers in the years to come,” Slome states.  “Our philosophy is that an educated consumer prevents problems down the road both for their family as well as for the industry itself.”

The Association has announced an initiative designed to look into these newer riders and to help provide a balanced look that will benefit consumers.  “There is no one single best solution that fits for every person,” Slome notes.  “But financial products can be complex and we are getting an increasing number of calls from consumers who are concerned and want to know more.”

Some eight million Americans currently have some form of long term care insurance protection according to AALTCI.  “We have a long way to go and much to do,” Slome concludes.  “You have to start somewhere.”

Established in 1998 as a non-profit trade group, the 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 long term care insurance costs call the organization’s offices at (818) 597-3227 or visit the Association’s website.

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The Association’s annual study of leading insurers found that 53 percent of buyers of these hybrid policies were under age 65 in 2011 compared to only 48 percent in 2010.   Some 42.5 percent of male and 38.5 percent of female buyers were between ages 55 and 64 explains Jesse Slome, director of the national trade group.  Nearly one in 10 buyers was between 45 and 54.

“A linked benefit policy has advantages that many pre-retirement consumers find attractive,” Slome notes.  Policies can fund expenses when qualifying long-term care is needed at home or in a skilled care facility.  Some linked, or hybrid products, allow unused benefits to pass to named beneficiaries income tax-free.  “At a time when long-term care is increasingly top of mind, these life insurance-based solutions avoid the ‘use it or lose it’ risk associated with traditional long term care insurance,” says Chris Coudret, CLU, ChFC, Vice President, OneAmerica one of the nation’s leading insurers offering linked benefit solutions.  “In most cases, people make a single payment, effectively removing the risk of future premium increases.”

The AALTCI study reported sales for the participating linked benefit insurers increased 14 percent in 2011 and the premium increased almost 20 percent.  To learn more or obtain long term care insurance costs from an Association member call (818) 597-3227 or visit the organization’s website www.aaltci.org.

Established in 1998, AALTCI is the national trade organization established to create heightened awareness regarding the importance of planning for long term care.  To access or read three free consumer guides outlining ways to reduce costs for long-term care insurance visit the Association website http://www.aaltci.org/long-term-care-insurance-costs/

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According to annual research conducted by the American Association for Long-Term Care Insurance women comprised just over 60 percent of new buyers the study found.

“Linked life insurance policies that offer long-term care benefits experienced significant growth in 2010,” states Jesse Slome, the national trade organization’s executive director.  “Consumers are finding these products offer a significant advantage when it comes to long-term care planning.”

Newer life insurance policies offer the ability for the policyholder to access funds should a need for long-term care occur.  “For those with sufficient savings to purchase coverage, these new forms of protection help overcome the what if I don’t need long-term care,” Slome explains.  If the policy benefits are not used for long-term care, the designated beneficiaries receive the death benefit.

According to data published in the Association’s 2011 Long-Term Care Insurance Sourcebook, over one-third (34%) of women who purchased new life+LTC policies in 2010 were between ages 55 and 64.  Nearly 40 percent were between ages 65 and 74.    Male purchasers tended to be slightly older Slome acknowledged.

“You need to have a fair amount of savings or what I call lazy money,” Slome explains.  “Lazy money consists of funds sitting in low-paying Certificates of Deposit that can be easily put to far better use on your behalf.”

The single premium face amount of just over two-thirds of new policies purchased in 2010 was over $100,000.  About a quarter of buyers opted for a face amount of over $200,000.

The complete findings are published in the Association’s 2011 Long-Term Care Insurance Sourcebook that can be obtained from any of the organizations 3,000 members.   Slome advises consumers considering long-term care insurance to carefully compare coverage with a knowledgeable professional.  ”Costs for virtually identical coverage can vary by as much as 40-to-60 percent,” he warns.

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Research conducted by the American Association for Long-Term Care Insurance (AALTCI), the national trade organization, examined 2008 sales data for over 5,000 new policies.  “Asset-based long-term care insurance protection is becoming an increasingly popular way for individuals to protect against the risk,” explains Jesse Slome, AALTCI’s Executive Director.

Asset-based long-term care policies offer the dual benefit of access to long-term care benefits as well as life insurance protection.  “Many individuals find this coverage attractive because if they don’t use their long-term care protection, their beneficiaries still benefit from the life insurance coverage,” Slome explains.

The average single premium paid for an asset-based LTC policy in 2008 was $70,975, according to the Association study.  This represented a four percent increase compared to 2007 when the average premium was $68,300.   Just under half of policies (49.7%) had a base face amount of between $100,000 and $200,000.  Some 30 percent had a face amount of life insurance protection of between $50,000 and $100,000.   “Policies offer a long-term care insurance protection in multiples of the life insurance benefit,” Slome explains.
Purchasers of asset-based LTC policies were almost equally divided between pre-65 (49%) and 65-or-older (51%).  Just over 10 percent (11.2%) of purchasers were between ages 45 and 54.   Exactly two-thirds of purchasers were women (66%).  “Buyers are older than individuals purchasing traditional long-term care insurance protection,” Slome notes.  According to the Association’s study, some 84 percent of buyers of traditional LTCi protection in 2008 were younger than age-65.
Asset-based long-term care protection and traditional LTC insurance policies share the requirement that applicants health qualify for coverage.  The percentage of accepted applicants declined with age according to the study’s findings.  Some 70.2 percent of submitted policy applications by individuals between 45 and 54 were accepted.  The percentage declined to 60.5 percent for applicants between ages 65 and 74.
“We anticipate the market for asset-based long-term care protection will increase in the years ahead,” predicts Slome.  “Leading insurers such as Genworth Financial and Lincoln Financial Distributors are focused on the growth of this market and policy sales.”

The American Association for Long-Term Care Insurance is the national organization serving insurance and financial professionals who provide long-term care financing solutions.  For additional information visit the organization’s online Producer’s Resource Center at www.aaltci.org.
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Findings:  2009 Asset-Based Long-Term Care Study
conducted by the American Association for Long-Term Care Insurance (June 2009)

2008 Sales By Issue Age
Under 35              0.1 %
35 – 44                          1.2 %
45 – 54                        11.2 %
55 – 64                        36.5 %
65 – 74                        38.2 %
75 or older            12.8 %

2008 Sales By Policyholder Sex

Male                        34 %
Female                        66 %

2008 Sales (Single Premium) By (Base) Face Amount
Less than $25,000              0.0 %
Bet $25,001 – $50,000              5.1 %
Bet. $50,001 – $100,000            30.0 %
Bet. $100,001 – $200,000            49.7 %
Over $200,000            15.2 %

Percentage of Submitted Policies Issued (By Age Band.  Total will not equal 100%)
Age 35 – 44            79.8 %
45 – 54            70.2 %
55 – 64            68.1 %
65 – 74            60.5 %
75 or older            52.7%

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