The Pension Protection Act of 2006 (PPA) was signed into law on August 17, 2006. Included among the many provisions in the PPA is Section 844 which, in part, encourages individuals to purchase insurance for future long-term care needs. This Section takes effect January 1, 2010 and is effective for contracts issued after December 31, 1996.

Section 844 of the PPA addresses the treatment of long-term care insurance riders that are added to annuity contracts or life insurance policies. In the past, the Tax Code has prohibited combinations of these insurance policies with annuity contracts because payouts from these policies were taxed differently under the Code. However, beginning January 1, 2010, the PPA permits long-term care insurance riders to be attached to annuity contracts. Once these riders are attached, they will be treated as separate contracts which are independent from the original annuity contracts. Accordingly, when a rider attached to an annuity contract is a tax-qualified long-term care rider, benefits paid out under the rider will generally be paid as tax-free long-term care insurance benefits, if certain triggering events occur.

These new “combination” policies are expected to be desirable to individuals previously concerned with the “use-it-or-lose-it” feature which is found in most stand alone long-term care insurance policies because the annuities included in the policies can be utilized, even if these services are ever needed by the policyholders.

Laura Troshynski

Knudsen, Berkheimer, Richardson & Endacott, LLP
3800 VerMaas Pl
Suite 200
Lincoln NE 68502
402 475 7011
402 475 8912 (F)