Tax Issues and Life Care Annuities

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Wharton Pension Research Council Working Papers
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life care annuities
regulation
long-term care insurance
Economics
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Brazell, David
Brown, Jason
Warshawsky, Mark
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A life care annuity combines an immediate life annuity with long-term care insurance. We review empirical evidence supporting the claim that the marketing of a life care annuity will produce a lower total price for the combined product, less adverse selection in the individual annuity market, and greater availability of long-term care insurance. This paper also discusses the institutional, regulatory, and tax aspects of a life care annuity, including its future tax treatment under the recently enacted Pension Protection Act of 2006. We conclude with a numerical illustration of the tax implications of various ways of structuring the life care annuity, and compare these implications with those produced by an above-the-line deduction for qualified long-term care insurance premiums.

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2007-09-01
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The published version of this Working Paper may be found in the 2008 publication: Recalibrating Retirement Spending and Saving (https://pensionresearchcouncil.wharton.upenn.edu/publications/books/recalibrating-retirement-spending-and-saving/).
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