The basics
What is an LTC annuity?
LTC annuities are designed to help clients reposition assets to create leveraged long-term care benefits. They can offer a way to help address LTC risk without the traditional use-it-or-lose-it structure of standalone LTC insurance.
- 3x leverage concept: a client may reposition a lump sum and receive up to roughly three times that amount as a long-term care benefit pool, depending on underwriting and product structure.
- Some products provide indemnity-style benefits (a set monthly amount) and others reimbursement-style benefits (actual qualified expenses), depending on the contract.
- Health underwriting may apply, and is often simpler than standalone LTC insurance — but it is not guaranteed issue.
- Benefits may be triggered by the inability to perform activities of daily living (ADLs) or by cognitive impairment, depending on the contract.
How it flows
From repositioned asset to leveraged benefit.
Tax treatment
Potential tax advantages
Under certain qualifying LTC annuity structures, gains may be used tax-free when paid out as qualified long-term care benefits. This can be a meaningful advantage compared with taking those same gains as ordinary taxable distributions.
Tax results depend on the specific product structure and the client's situation, and rules can be nuanced. Clients should consult a qualified tax advisor. Nothing here should be presented as a guaranteed tax outcome.
Side by side
Traditional LTC Insurance vs. LTC Annuity
| Feature | Traditional LTC Insurance | LTC Annuity |
|---|---|---|
| Premium structure | Ongoing premiums, often for life | Typically a single repositioned lump sum |
| Asset repositioning | Not asset-based; pay-as-you-go | Repositions an existing asset into the contract |
| LTC benefit leverage | Benefit pool based on policy design | May provide leveraged benefit pool, often up to ~3x |
| Cash value / death benefit | Generally none (use-it-or-lose-it) | Remaining value may pass to beneficiaries, per contract |
| Underwriting | Typically full medical underwriting | Underwriting may apply, often simplified |
| Best fit | Clients wanting dedicated LTC coverage | Clients repositioning idle assets to cover LTC risk |
Exploring LTC leverage for a client?
Bring us the asset and the objective and we will help you evaluate whether repositioning fits.