Tax Issues and Life Care Annuities
long-term care insurance
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.