The new Pension Protection Act of 2006 not only affects pensions, it also involves long-term care (LTC) insurance. In the new act, Section 1035 of the tax code was amended. This section, which has been in existence for many years, allows tax-free exchanges of life insurance policies and annuities.
* The new law confirms that insurance policies and annuities can be exchanged for certain LTC insurance policies, tax-free.
* In addition, the pension act clarifies that life insurance and annuity contracts containing LTC features will be eligible for tax-free exchanges. (Some insurance policies and annuities have provisions allowing access to cash if long-term care is needed.)
The new rules generally won’t take effect until 2010. However, there may be an immediate planning possibility. Starting right away, you might consider building up cash value in an annuity or life insurance policy for use in a tax-free exchange for LTC insurance, after 2009. The more cash you build up, the more generous an LTC policy you’ll probably be able to acquire.
