A New Tax Law That is A New Tax Law That is Actually Actually

Good For YouGood For You

Section 844 of theSection 844 of the

Pension Protection Act of Pension Protection Act of 20062006

AgendaAgenda

Pension Protection Act 2006Pension Protection Act 2006 Section 844Section 844

Ok, this sounds boring.Ok, this sounds boring.

But the new laws are VERY consumer But the new laws are VERY consumer friendly and you will gain valuable friendly and you will gain valuable information today.information today.

Producer Training Requirements Producer Training Requirements

Required for all producers selling Required for all producers selling anyany LTC insurance in LTC insurance in State – Partnership or Non-PartnershipState – Partnership or Non-Partnership

Initial NAIC 8-hour CE course and 4-hours CE every 24 Initial NAIC 8-hour CE course and 4-hours CE every 24 months may be taken online or in personmonths may be taken online or in person

Some states are requiring state-specific Medicaid and Some states are requiring state-specific Medicaid and Partnership information in addition to the NAIC 8-hour Partnership information in addition to the NAIC 8-hour CE course.CE course.

New Tax LawNew Tax Law

PENSION PROTECTION ACT OF PENSION PROTECTION ACT OF 20062006

Section 844 of Act specific to benefits found Section 844 of Act specific to benefits found

in annuity productsin annuity products

Allows for Allows for Tax FreeTax Free Distributions of Gain in Distributions of Gain in

Compliant Deferred Annuities to Compliant Deferred Annuities to

Fund/Reimburse Long Term Care ExpensesFund/Reimburse Long Term Care Expenses

Includes All Types of Care Includes All Types of Care

PENSION PROTECTION PENSION PROTECTION ACT OF 2006ACT OF 2006

Withdrawals from Non-Qualified Withdrawals from Non-Qualified annuities can be tax free to pay for annuities can be tax free to pay for long term care long term care expenses expenses only if the only if the current annuity is PPA ’06 compliant.current annuity is PPA ’06 compliant.

Withdrawals from Non-Qualified Withdrawals from Non-Qualified annuities can be tax free to pay for annuities can be tax free to pay for long term care long term care insurance premiumsinsurance premiums even if not PPA ’06 compliant.even if not PPA ’06 compliant.

Treatment of annuity and life insurance Treatment of annuity and life insurance contracts with a long term care contracts with a long term care

insurance featureinsurance feature

The above is the official title of Section 844The above is the official title of Section 844Section 844 has the following benefits:Section 844 has the following benefits:1) It allows LTCI benefits from annuities 1) It allows LTCI benefits from annuities

and life insurance policies to pay income and life insurance policies to pay income tax freetax free(so long as the benefits are tax qualified).(so long as the benefits are tax qualified).

2) It allows for the 1035 exchange of a life 2) It allows for the 1035 exchange of a life insurance policy or annuity to a LTCI insurance policy or annuity to a LTCI policy.policy.

3) It allows for the 1035 exchange of an 3) It allows for the 1035 exchange of an annuity that does not have a LTCI rider to annuity that does not have a LTCI rider to one that does have one.one that does have one.

So What Does This So What Does This Mean?Mean?

Suppose you have an annuity worth Suppose you have an annuity worth $150,000 and the cost basis is $80,000. $150,000 and the cost basis is $80,000. If you wanted to take money from the If you wanted to take money from the annuity, you pay ordinary income tax on annuity, you pay ordinary income tax on the gain of $70,000.the gain of $70,000.

But if you take money out to pay for LTC But if you take money out to pay for LTC expenses or insurance, you pay NO expenses or insurance, you pay NO TAXES. It saves you the taxes of the TAXES. It saves you the taxes of the $70,000 gain. That is perhaps a $19,000 $70,000 gain. That is perhaps a $19,000 savings.savings.

What’s the Catch?What’s the Catch?

Most existing annuities do not Most existing annuities do not have LTC provisions in the have LTC provisions in the wording of the contract therefore wording of the contract therefore would not qualify for tax free would not qualify for tax free withdrawals. An annuity must be withdrawals. An annuity must be PPA06 certified for the PPA06 certified for the withdrawals to be tax free. Few withdrawals to be tax free. Few carriers have the proper wording carriers have the proper wording in their existing contracts.in their existing contracts.

Exchanging fundsExchanging funds

DEFERRED ANNUITY TO LTC 1035 DEFERRED ANNUITY TO LTC 1035 TRANSFER AUTHORIZATIONTRANSFER AUTHORIZATION

• • Only individual-owned annuity to individual-owned LTC Only individual-owned annuity to individual-owned LTC policy or joint-owned annuity to shared LTC policy policy or joint-owned annuity to shared LTC policy exchanges are permitted. The proposed/current LTC exchanges are permitted. The proposed/current LTC insured(s) must be the owner(s) of the annuity.insured(s) must be the owner(s) of the annuity.

• • Only annual mode is available with the 1035 partial Only annual mode is available with the 1035 partial exchanges program.exchanges program.

I/We understand that the above requested transfer of funds I/We understand that the above requested transfer of funds from my/our existing annuity contract will be handled as from my/our existing annuity contract will be handled as 1035 exchange(s). I/We hereby authorize carrier to process 1035 exchange(s). I/We hereby authorize carrier to process the required exchange(s) the required exchange(s) on a one time or recurring annual basis, withdrawing necessary funds from the above designated annuity contract(s) to fund the premiums of the Long Term Care Insurance Policy referenced above.

1035x to a LTC policy1035x to a LTC policy

Existing annuity does NOT have to be Existing annuity does NOT have to be PPA’06 compliant.PPA’06 compliant.

LTC policy should be on annual mode.LTC policy should be on annual mode. 1035x is for the annual LTC premium 1035x is for the annual LTC premium

amount.amount. Done each year.Done each year. Annuity carrier should provide a 1099 Annuity carrier should provide a 1099

but coded LTC so tax free.but coded LTC so tax free. Check with annuity carrier if compliantCheck with annuity carrier if compliant

Annuities Annuities ANNUITY LANDSCAPEANNUITY LANDSCAPE

150 Billion Annual Sales150 Billion Annual Sales 1.8 Trillion in In-Force Annuities (that’s 1.8 Trillion in In-Force Annuities (that’s

$1,800,000,000,000)$1,800,000,000,000) Deferred Annuity Deferred Annuity purchasers purchasers are attracted byare attracted by

SafetySafety Favorable tax treatmentFavorable tax treatment Guaranteed incomeGuaranteed income Avoiding probateAvoiding probate

Do you have an annuity? Do you have an annuity?

According to an industry study:According to an industry study: 83% of non-qualified annuity holders 83% of non-qualified annuity holders

never touch the funds.never touch the funds. When asked why they hold an When asked why they hold an

annuity the two most common annuity the two most common answers are answers are

1)1) For emergencies For emergencies

2)2) To pass to my spouse or familyTo pass to my spouse or family

AnnuitiesAnnuities

ANNUITY LANDSCAPE – WHAT’S ANNUITY LANDSCAPE – WHAT’S REALLY HAPPENING NOW?REALLY HAPPENING NOW?

How many are annuitized?How many are annuitized? How do annuity owners plan to fund How do annuity owners plan to fund

medical emergencies?medical emergencies? How do we sell annuities in a low How do we sell annuities in a low

interest rate environmentinterest rate environment

Long Term Care Long Term Care InsuranceInsurance

LONG TERM CARE LANDSCAPELONG TERM CARE LANDSCAPE

Long Term Care Insurance is a “good idea”Long Term Care Insurance is a “good idea”

95% of people age 65 or older are not 95% of people age 65 or older are not buying itbuying it

Recent economy – do clients want to pay Recent economy – do clients want to pay premiums?premiums?

More and more boomers every yearMore and more boomers every year

Whether consciously or sub-consciously: Whether consciously or sub-consciously: clients are self-insuringclients are self-insuring

LTCI Most Common LTCI Most Common Objections Objections

1)1) Too expensiveToo expensive

2)2) What if I never use the benefits?What if I never use the benefits?

3)3) Insurance companies can raise Insurance companies can raise rates on merates on me

4)4) I’ve got enough money to pay on I’ve got enough money to pay on my ownmy own

Linked BenefitsLinked Benefits

WHAT ARE LINKED BENEFITS?WHAT ARE LINKED BENEFITS?

Single Premium ProductsSingle Premium Products Some Annual Premium Paying Products Some Annual Premium Paying Products

AvailableAvailable Annuities, Universal Life and Whole LifeAnnuities, Universal Life and Whole Life Better Leveraging Assets for These Better Leveraging Assets for These

BenefitsBenefits Non-Qualified or Qualified fundsNon-Qualified or Qualified funds NOT LTC Partnership ApprovedNOT LTC Partnership Approved

Linked BenefitsLinked Benefits

HOW DO LINKED BENEFIT PRODUCTS HOW DO LINKED BENEFIT PRODUCTS WORK?WORK?

Creating tax advantaged withdrawals Creating tax advantaged withdrawals from annuities and life insurance to from annuities and life insurance to reimburse or fund long term care eventsreimburse or fund long term care events

Doubling, tripling or creating a lifetime Doubling, tripling or creating a lifetime of unlimited benefitsof unlimited benefits

Withdrawing from accumulation value Withdrawing from accumulation value first, then extending benefitsfirst, then extending benefits

Going on ClaimGoing on Claim

Similar triggers to traditional LTCI Similar triggers to traditional LTCI policiespolicies

Can’t perform 2 of 6 ADLsCan’t perform 2 of 6 ADLs Cognitively ImpairedCognitively Impaired Doctor recommendationDoctor recommendation Most are reimbursement some indemnityMost are reimbursement some indemnity Daily or Monthly Benefit PaymentsDaily or Monthly Benefit Payments TAX FREE BENEFITSTAX FREE BENEFITS

Going on ClaimGoing on Claim

Tapping into death benefit or Tapping into death benefit or annuity accumulation value first, annuity accumulation value first, then rider kicks in and provides then rider kicks in and provides additional pool of money.additional pool of money.

Premium paying policies usually Premium paying policies usually tapping into death benefit only and tapping into death benefit only and no additional pool of money.no additional pool of money.

TAX FREE BENEFITSTAX FREE BENEFITS

Linked BenefitsLinked Benefits

Life insurance with LTC benefitsLife insurance with LTC benefitsWhole life or Universal life baseWhole life or Universal life base

Single life or second-to-dieSingle life or second-to-die

Single premium or on going Single premium or on going premiumspremiums

Fixed annuities with LTC Fixed annuities with LTC benefitsbenefits

Accelerated Benefit Accelerated Benefit RidersRiders

Commonly called Commonly called Chronical Illness Chronical Illness rider.rider. Similar triggers for a LTC claim.Similar triggers for a LTC claim. Usually no additional pool of money…Usually no additional pool of money…

just death benefit.just death benefit. No health license or additional CE No health license or additional CE

required.required. UL or Whole Life productUL or Whole Life product Premium Flexibility- Lifetime payment or Premium Flexibility- Lifetime payment or

single paysingle pay

Product SamplesProduct Samples

Without mentioning specific carriers,Without mentioning specific carriers,

here are a few samples of how linked here are a few samples of how linked benefit products work.benefit products work.

Life/LTC Linked BenefitsLife/LTC Linked Benefits

Female age 60 non-tobacco widowedFemale age 60 non-tobacco widowed

$750,000 in assets such as CDs, stocks, $750,000 in assets such as CDs, stocks, annuities, IRAs, proceeds from husband’s annuities, IRAs, proceeds from husband’s life insurance…life insurance…

Concerned about LTC needs.Concerned about LTC needs.

$100,000 repositioned to a life/LTC linked $100,000 repositioned to a life/LTC linked benefit.benefit.

Comparing Products Life/LTCComparing Products Life/LTCFemale age 60 standard NT Female age 60 standard NT

$100,000$100,0001616thth Pres. Pres.

LifeLife

Guard Guard MoneyMoney

Big Sig Big Sig Life Life Life Life CaringCaring

Good Things to Good Things to

LifeLife TLC TLC

Life Life InsuranceInsurance

$193,296$193,296 $202,962$202,962 $209,520$209,520

LTC LTC monthly monthly benefitbenefit

$8,054$8,054 $8,457$8,457 $8,730$8,730

LTC LTC durationduration

6 years6 years 6 years6 years 6 years6 years

Total LTC Total LTC benefitbenefit

$579,888$579,888 $608,886$608,886 $628,560$628,560

Return of Return of premiumpremium

100%100% 100%100% 100%100%

Annuity/LTCAnnuity/LTC Wild Kingdom Wild Kingdom LifeLife

50 States Life50 States Life

Elimination PeriodElimination Period 60 months60 months 7 days7 daysBenefit PeriodBenefit Period 72 months72 months 60 months60 monthsAnnuity Value Yr 1Annuity Value Yr 1 $102,040$102,040 $101,023$101,023LTC Value Yr 1LTC Value Yr 1 $0$0 $254,414$254,414LTC Daily Benefit LTC Daily Benefit Yr 1Yr 1

$0$0 $142$142

Annuity Value Yr Annuity Value Yr 1010

$123,175$123,175 $110,324$110,324

LTC Value Yr 10LTC Value Yr 10 $369,525$369,525 $296,752$296,752

LTC Daily Benefit LTC Daily Benefit Yr 10Yr 10

$168.73$168.73 $162.13$162.13

Annuity Value Yr Annuity Value Yr 2020

$151,830$151,830 $120,704$120,704

LTC Value Yr 20LTC Value Yr 20 $455,491$455,491 $349,328$349,328

LTC Daily Benefit LTC Daily Benefit Yr 20Yr 20

$207.99$207.99 $194.06$194.06

What about qualified What about qualified money?money?

One carrier has a second-to-die contract.One carrier has a second-to-die contract.

Transfer IRA to an IRA annuityTransfer IRA to an IRA annuity

1/201/20thth is withdrawn each year – taxable is withdrawn each year – taxable

Withdrawal is used to pay life premiumsWithdrawal is used to pay life premiums

Life contract has a LTC riderLife contract has a LTC rider

Can include spouseCan include spouse

TAX FREE withdrawals for LTC needsTAX FREE withdrawals for LTC needs

So What Do I Do?So What Do I Do?

Go through your existing book of businessGo through your existing book of business

Identify clients who have NQ annuities, Identify clients who have NQ annuities, CDs, have interest in LTC insurance, CDs, have interest in LTC insurance, are between 50-80, high cash values in are between 50-80, high cash values in life insurance, have larger gain in their life insurance, have larger gain in their existing annuities…existing annuities…

Then what do you do?Then what do you do?

So What Do I Do?So What Do I Do?

CALL THEM!CALL THEM!

Sample approachSample approach

““Dorothy, there has been a tax law Dorothy, there has been a tax law change that I think may have a positive change that I think may have a positive affect for you. I’d like to schedule a affect for you. I’d like to schedule a time to go over this with you.”time to go over this with you.”

““Frank, I know you have that old Frank, I know you have that old annuity with XYZ Company. Thanks to annuity with XYZ Company. Thanks to a tax law change, I may be able to a tax law change, I may be able to enhance the benefits of your annuity.”enhance the benefits of your annuity.”

Sample ApproachSample Approach

““Chuck, I know you are not a fan of Chuck, I know you are not a fan of long term care insurance but thanks long term care insurance but thanks to a tax law change, I would like to to a tax law change, I would like to share with you a couple ideas or share with you a couple ideas or options that may be in your best options that may be in your best interest.”interest.”

So What Do I Do?So What Do I Do?

1)1) Review current non-qualified Review current non-qualified annuity. Is it PPA’06 compliant?annuity. Is it PPA’06 compliant?

2)2) Consider repositioning to an Consider repositioning to an annuity that allows tax free annuity that allows tax free withdrawals to reimburse LTC withdrawals to reimburse LTC expenses. Could save expenses. Could save $thousands in taxes.$thousands in taxes.

So What Do I Do?So What Do I Do?

1)1) Do you have a long term care Do you have a long term care insurance policy? How are you insurance policy? How are you paying premiums?paying premiums?

2)2) Consider a 1035 exchange from your Consider a 1035 exchange from your existing annuity to have tax free existing annuity to have tax free dollars pay the premiums.dollars pay the premiums.

3)3) Call your current annuity company Call your current annuity company to see if they will allow for 1035x.to see if they will allow for 1035x.

How to approach a How to approach a prospectprospect

http://portal.sliderocket.com/AGERJ/http://portal.sliderocket.com/AGERJ/Linked-Benefits-consumerLinked-Benefits-consumer

This is a powerpoint with audio that This is a powerpoint with audio that you can email to prospects or clients you can email to prospects or clients introducing them to linked benefits.introducing them to linked benefits.

UNDERWRITINGUNDERWRITING

Linked Benefit products usually no paramedLinked Benefit products usually no paramed Phone interview testing for cognitive abilityPhone interview testing for cognitive ability

TAKE IT SERIOUSLY TAKE IT SERIOUSLY

word recallword recall Often NO medical records neededOften NO medical records needed Contracts issued within days Contracts issued within days

Accelerated Riders usually full underwritingAccelerated Riders usually full underwriting

LINKED BENEFITSLINKED BENEFITS

SOMETHING NEW TO TALK TO SOMETHING NEW TO TALK TO CLIENTS ABOUTCLIENTS ABOUT

TAX FREE BENFITS FOR LTC NEEDSTAX FREE BENFITS FOR LTC NEEDS AVOID GAIN IN NQ ANNUITIESAVOID GAIN IN NQ ANNUITIES LEVERAGE DOLLARS AND CREATE LEVERAGE DOLLARS AND CREATE

MOREMORE KEEP MORE $ UNDER KEEP MORE $ UNDER

MANAGEMENTMANAGEMENT

Questions?Questions?

Have questions?Have questions?

Contact me via email.Contact me via email.

mikes@idcnet.com mikes@idcnet.com

1-800-657-07361-800-657-0736

Could present at your state or local.Could present at your state or local.