The Pension Protection Act of 2006 act included some changes that take effect in 2010. Some of those changes relate to long-term care (LTC) insurance:
* Deferred annuities can have LTC riders. Prior law specifically allowed riders for life insurance policies but not for annuities. Now, it-s official that LTC riders can be added to deferred annuities. If so, the annuity will still offer tax deferral while LTC benefits can be tax-free.
* Consumers won-t owe tax on "phantom income." The new rules state that income tax won-t be due when money paid for life insurance or an annuity is transferred within the contract to pay the cost of an LTC rider.
* LTC insurance is now eligible for tax-deferred exchanges. Life insurance policies, annuities, and LTC insurance policies can be exchanged for LTC policies or other insurance products with LTC riders. Previously, LTC coverage wasn-t included under the tax-free exchange rules of Section 1035 of the tax code.
Therefore, if you have a life insurance policy or a deferred annuity, you might want to consider exchanging it for a product with LTC coverage. Such an exchange can be tax-free, although surrender charges might apply.
