Save money on long term care insurance by paying for your policy with tax-deferred money in your cash-value life insurance or annuity.
In addition to taking advantage of the many long term care insurance discounts and tax savings, there are two more strategies to help you save even more money on your long term care insurance. These two strategies both take advantage of recently passed legislation to pay for long term care insurance premiums with tax deferred insurance policies.
Long Term Care Insurance Paid With Cash Value Life Insurance Policies Or Annuities
On August 17, 2006, President George Bush signed the Pension Protection Act of 2006 into law. This legislation included features to encourage savings and provides favorable tax treatment for funding long term care insurance. Beginning January 1, 2010, owners of annuities and cash value life insurance annuity can use their policies to pay for long term care insurance premiums tax-free, regardless of account basis. Therefore you can now use tax-deferred gains in your cash value life insurance policy or annuity to fund long term care insurance premiums. Since qualified long term care expenses are paid tax-free by your long term care insurance policy, this means that tax-free dollars are paying for tax-free benefits in retirement.
This legislation is most advantageous for owners of cash value life insurance and annuity policies who have realized significant tax-deferred gains. These policy holders can now use the accumulated cash value in their policies to pay for long term care insurance premiums tax-free through a 1035 exchange. Since policy gains are not taxed and long term care insurance benefits are paid tax free, this is another strategy to save thousands of dollars on long term care insurance.
Your Tax Free Dollars Can Pay For Tax Free Long Term Care Benefits
Long Term Care Insurance Paid With Tax Free Immediate Annuity Distributions
Another strategy to save money on long term care insurance is to fund annual long term care insurance premiums with an immediate annuity. In this simple strategy, a policy holder transfers a lump sum into an immediate annuity that is set up to make an annual payment to pay for long term care insurance premiums through a 1035 exchange. These immediate annuity distributions are not considered reportable income because they pay for long term care insurance premiums. Once set up, the policy holder never has to worry about paying their long term care insurance premiums since the annuity automatically pays it for them. Tax free immediate annuity distributions will help the policy holder save tens of thousands of dollars in income taxes over the life of their policy.
