Tax Issues and Life Care Annuities
Tax Issues and Life Care Annuities
A life care annuity combines an immediate life annuity with long-term care insurance. This chapter reviews 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. It 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. The chapter concludes with a numerical illustration of the tax implications of various ways of structuring the life care annuity, and it compares these implications with those produced by an above-the-line deduction for qualified long-term care insurance premiums.
Keywords: life care annuity, long-term care insurance, costs of care, retirement income, insurance value, disability, healthcare, premium charge, taxable income
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