“Agents are very excited about the new
products,” says Thomas Jurek, a sales di-
rector for Art Jetter & Company, an Oma-
ha, Neb.-based brokerage general agency.
“Many have told me the hybrids are too
good to be true.”
Adds Mike Hamilton, head of product
development for insurance solutions at
Philadelphia, Pa.-based Lincoln Finan-
cial Group: “we’ve seen significant sales
growth in recent years of our linked ben-
efit products. The reception among pro-
ducers and clients has been fantastic.”
Long-term care insurance offered as a
rider in a linked benefit annuity can now
be tax-qualified (a tax treatment that life-
LTC combo products enjoyed before the
law’s passage). Internal charges to pay
the qualified long-term care insurance
rider in a life insurance policy or annuity
are no longer treated as taxable distribu-
tions. Moreover, life insurance policies
and non-qualified annuities can be ex-
changed tax-free for traditional LTC insur-
ance policies.
A chief benefit of the PPA, say experts,
is the ability to escape taxation on account
gains. If, after exchanging an appreciated
single premium immediate annuity for a
combo product, the client submits a claim,
the LTC benefit (including the gain accrued
in the old annuity) is distributed tax-free.
ts
“I’m seeing a lot of clients transferring
money from highly appreciated annuities
into linked benefits product to secure a
tax-free distribution,” says Irving. “And the
tax savings are often massive.”
“Advisors should look for the client
who is self-insuring the LTC event ask
them which asset they would liquidate
first to pay for LTC expenses,” says doug
Burkle, the linked benefits product de-
velopment leader at Genworth Financial,
Richmond, va. “They can then suggest re-
positioning this asset with a linked benefit
solution that will provide more protection
than self-insuring dollars, as well as free
up assets for other uses.”
The LTC benefit, sources say, is fre-
quently purchased as a hedge against
long-term care expenses that might oth-
erwise drain assets intended for heirs.
But not all clients fit this profile. shawn
Britt, an advanced sales consultant for
Nationwide Financial, Columbus, Ohio,
says that many annuity-LTC prospects
purchase a combo product to fund twin
needs: supplementing existing savings to
meet retirement needs and insure against
a long-term care event.
As with traditional, LTC-only products,
healthy prospects also make better can-
didates for the linked benefit solutions
because underwriting factors in not only
mortality costs, but also morbidity: The
incidence of an illness or disease result-
ing in cognitive impairment, or one that
impacts activities of daily living. The best
policies, observers say, pay benefits if the
client cannot perform two or more AdLs
without assistance.
Linked
Benefits
Solutions for
Advanced
Planning
BY wArreN s. HerscH
If you do advanced planning, a linked
benefit product could be a valuable addition
to your toolbox.
Shawn Britt, an advanced sales consultant for Nationwide Financial, Columbus,
Ohio, says a combo solution can be used,
for example, to fill a common gap in buy-sell
planning: funding the buy-out of a partner.
Assuming, for example, that each of two
partners owns 50% of a business valued
at $800,000, then each can purchase a
$400,000 linked-benefit policy on the life
of the other. In the event that one partner
requires long-term care, the LTC benefit can
be used to buyout the partner’s interest in
installments.
Britt adds that a linked life-LTC policy can
also prove valuable in estate planning to provide additional income to a trust and reduce
estate taxes. She cites a hypothetical client
who, to cover a $5 million estate tax liability,
sets up an irrevocable life insurance trust
that owns a $5 million life insurance policy,
$1 million of which is available to cover long-term care expenses.
In Britt’s scenario, the trust loans $1
million to the client (trust grantor) to a cover
a long-term claim, the loan collateralized
by a vacation home owned by grantor. The
remaining $4 million of the life policy is paid
at the grantor’s death, the proceeds used in
part to retire the debt owed by the estate
to the trust ($1 million borrowed for the LTC
claim, plus $352,000 in accrued interest on
the loan). Upshot: the trust ends up with
$5.352 million after the grantor’s death,
rather than $5 million if a life-only policy
were purchased.
