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Regardless of what survey you read or what poll you listen to one thing is very clear,  people  today are living longer, largely a result of modern pharmacology’s ability to convert an acute illness into a chronic illness.  As a result they will now require  many additional months and years of custodial or skilled care  costing additional billions of dollars .  However despite the fact that  over 50% of our adult population   according to the American Medical Association will require some  sort of long term care , lasting on average 3 years , less than 8% of the population has thus far purchased a traditional Long term Care  insurance product..

Make no mistake about it as people live longer there will be an ever increasing  need for  more custodial , intermediate and skilled  care required by  our aging population. However what seemed to stand  in most consumers way of purchasing this protection  was the gnawing concern ” what if I buy this Insurance and I never need it Ill have wasted all of that money”

Well the insurance industry finally recognized their failure at meeting one of the industries most pressing needs, the ability to provide care to an individual to  allow them to maintain their dignity and  independence during a time in their lives when they become old and frail and just need some help getting around.

To meet this challenge the Life Insurance Industry in conjunction with the Federal Govt decided to work on a piece of legislation to encourage more  people to use their own funds or Insurance funds to pay for their own long term care costs rather than relying on the Federal Governments Medicaid coffers  to foot the bill..
They first set out to accomplish this task back in 2005 during the enactment of the 2005 Pension Protection Act.   At  that time they agreed on a strategy where  effective  next month Jan 01 ,2010 Individuals will for the first time ever  will be able to use an Annuity with untaxed gains  to purchase a new annuity called a Linked Annuity which can then be used to pay for ones long term care  Insurance  protection.  In doing so the gains of the previously untaxed annuity will escape any Income taxation ever.

Should a person however go through their life with one of these Linked Annuities and never need the Long term care component attached to this Annuity they will be able to spend the balance of the principal in the Annuity any way they see fit .

In anticipation of this new law the Long Term Care Industry will begin to offer a new method of paying for  ones long term care costs .  This strategy will  involve the  lump sum transfer of  ones assets in an annuity that has not been taxed , to a new Annuity with a built in  long term insurance feature . This New  Linked Annuity offers some very attractive Tax Free features such as allowing a previously untaxed lump sum of money  for the first time ever to escape Income taxation . .   Several of the major carriers are anticipating that such a concept will encourage more individuals to purchase  such Non Traditional  yet  still Long Term Care Insurance protection.

In a further attempt on the part of the Insurance Industry and the federal Govt to encourage individuals to purchase these new Linked Annuity products it should be noted that individuals will be able to do a 1035 Totally  Tax Free exchange from one of the current taxable annuities to one of the new Linked annuities, in whole or in part.

As a result individuals will now have the ability to either pay for their traditional long term care insurance on a annual basis or on a  lump sum transfer basis.
Currently only non qualified purchases can be made, which is ironic because the very assets one is trying to protect their retirement assets,  are not yet  allowed to be used to purchase this protection.

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Tags: certified financial planner, henry montag, lee rosenberg, life insurance, linked annuity, long term care, tax free exchange

About the Author: Henry Montag is an Independent Certified Financial Planner as well as a CLTC. He’s been in practice since 1976 with offices on Long Island, New York. He is a contributing writer for The Moneypaper, a national financial publication, been my sourced by Investors business Daily, Long Island Business News, Newsday, Wall St Journal, The Moneypaper,Investment News, Senior Lifestyles and has held insurance and securities licenses for over thirty years.

This entry was posted on Sunday, December 13th, 2009 at 8:54 pm and is filed under long term care. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.