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Long Term Care Annuities      Laddering with Annuities      Specialty Products

Specialty Annuities

Long Term Care Annuities

Long Term Care (LTC) annuities are single premium deferred annuities with a long term care benefit attached.  They are safe, the funds accrue at a competitive interest rate, and the account grows tax deferred. 

To form a LTC annuity, the insurance company has built in a “long term care option”.  It is not a rider and there is no additional premium for this option.  The insurance company provides up to three times the single premium as an additional LTC benefit.

Usually LTC annuities credit interest at a lower rate than single premium deferred annuities.  If the client does not need long term care, the annuity continues to grow tax-deferred.  However, if sometime in the future a long term care need does arise, they will be able to draw from their annuity as a long term care benefit.  Note:  when the client draws on their LTC annuity for long term care benefits it proportionally draws down their annuity value.  The annuity value could be zero, but the LTC “three times benefit” will still be providing LTC benefits, until it is exhausted.

The Pension Protection Act of 2006 stated that benefits for long term care used from LTC annuities will not create a taxable event (effective January 1, 2010). 

To qualify, a person only needs to lose two of six activities of daily living (ADL).  ADL includes eating, bathing, dressing, toileting, transferring (walking) and continence.  There are many advantages and some concerns your client should consider when analyzing how to cover the costs of a long term care stay.  To get more information about a Long Term Care Annuity, please contact us at 866.452.3670 or email PIPAC LIFE Brokerage at sales@pipaclife.com.

Split (Combo) Annuities:  A split annuity is not an annuity policy but a combination of two annuity products.  A single premium deferred annuity (SPDA) and a single premium immediate annuity (SPIA).  Structured in such a way as to produce immediate tax advantaged income for a guaranteed period of time and to restore the original principal at the end of the same time period.

The SPDA is used to restore the original principal at the end of the guaranteed period, while the SPIA provides guaranteed monthly tax advantaged income for the same time period.

Advantages of using a split annuity are:

  • Dependable Tax-Advantaged Income generating a stream of guaranteed monthly income for a set period of time.
  • Tax-Advantaged Income due to the fact that a major portion of the premium is considered return of premium of the original investment.  As much as 97% can be tax-free depending on the age of the client and the amount which is deemed to be a return of premium.
  • Tax-Deferred Growth and Principal Preservation of the portion of the split-annuity which is invested in an SPDA.  The goal is to restore the principal to it’s original amount at the end of the guaranteed period, allowing the client to start the process over again. 

 

Laddering with Annuities

Defined; laddering of annuities is a method of staggering the purchase of annuities in order to take advantage of market conditions, maturities while allowing more diversification and safety in one’s portfolio. 

A study by MassMutual Financial Group produced some very interesting retirement income results:

The study, which tested four strategies for managing a retirement income account over 181 time periods (referred to as cases) between 1965 and 2006, found that the three strategies involving an income annuity, whether purchased all at once or over time, generally out-performed the stock and bond-only strategies, regardless of market conditions in the periods studied.

In fact, the investment-only approach, even during strong equity and bond markets ran out of money in 25% of the cases.  In contrast the strategy of laddering into a life annuity matched the income goal in 100% of the cases tested.  The study also compared growth of the four different investment strategies using market data from 1980 to 2006.  The stock and bond portfolio ended with a value of $489,346.  The portfolio using laddered annuities ended up at $735,292.  This was the highest value of all the strategies that were tested.

Laddering of annuities can be effective when used for accumulation of assets using single-premium deferred annuities (SPDA).  Offering your clients different guaranteed periods, allows your clients to take advantage of changes in market conditions.  Flexibility and safety are key components when considering the laddering of a SPDA.

Another great reason to use the laddering concept is to create flexibility and potentially more income for retirement.  As the MassMutual study proved, laddering of income generated by immediate annuities (SPIA) can in most market situations, create more income and allow more flexibility.

Let us help you understand more about how laddering of annuities can help boost your annuity sales.  Call us at 866.452.3670 or email  sales@pipaclife.com to help your clients gain more flexibility, safety and income by investing in annuities.