Eric Petroff--LTC Annuities: Two Safety Nets In One
Thursday, October 7, 2010 at 11:40AM (Investopedia)The government must be getting worried about all those aging baby boomers. With healthcare in jeopardy, it recently took a step to shift healthcare costs back to the taxpayer. A new 
change to the tax law allows long-term care (LTC) insurance premiums to be paid with pretax dollars. This seemingly innocuous move has created the "LTC annuity", a combination of LTC insurance and an annuity.
Fundamentally, the LTC annuity is simply a repackaging of two existing products, but with a slight spin. As the name suggests, an annuity is overlaid with LTC insurance, but the new tax code allows premiums to be deducted from the annuity's income stream without creating a taxable event. This effectively lowers the cost of the LTC insurance premiums, thereby encouraging people to purchase these policies, alleviating future strain on social programs.
It is nearly impossible to offer a single analysis that can be applied across the board to all LTC annuities. Insurance products always differ slightly from one company to the next, and the tax code is constantly in a state of flux. What is possible is to examine the financial underpinnings of annuities and LTC insurance separately. This will assist in evaluating a combined LTC annuity product.
Annuity Portion
Annuities can take two forms. The first is that of a tax-deferred investment vehicle. The second is an insurance policy designed to protect income in retirement (a retirement annuity). It is the retirement annuity that is the basis for the LTC annuity. (To learn more about annuities, see An Overview Of Annuities.)
Eric Petroff is the director of research of Wurts & Associates, an institutional consulting firm advising nearly $40 billion in client assets. Before joining Wurts & Associates, Petroff spent eight years at Hammond Associates in St. Louis, another institutional consulting firm, where he was a senior consultant and shareholder. Prior to Hammond Associates, he spent five years in the brokerage industry advising retail clientele and even served as an equity and options trader for three of those years. He speaks often at conferences and has published dozens of articles for Investopedia.com and the New Zealand Investor Magazine.
