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Long term care annuities allow the policy holder to self-insure their long term care insurance while protecting their assets from risk. The investment accumulates tax-deferred, less monthly charges for the long term care benefit. Because of tax law changes brought about by the Pension Protection Act of 2006, beginning January 1, 2010 your LTC premium deductions will no longer be taxable. (Under certain conditions, monthly deductions for LTC insurance may be tax deductible, but until the law changes take effect, monthly deductions for the LTC premium are taxable and the policy holder will receive a 1099 for this deduction.)
As an example: If you have an emergency fund set aside, moving a portion of it into Annuity can provide you up to three times that amount for LTC coverage. During the benefits phase, benefits paid from the annuity portion of your LTC Annuities are treated as distributions, thus any interest earnings are withdrawn first and taxable to the owner. Benefit payments made to providers may be tax deductible. With passage of the Pension Protection Act of 2006, as of January 1, 2010 all benefits paid from your annuity for qualified LTC expenses are not taxable.