The Secret Weapon for Tax-Free Long-Term Care

the Pension Protection Act allows annuity owners to turn gains into tax-free LTC benefits — without buying traditional insurance.

The Problem:

Clients with non-qualified annuities often face a dilemma:

“I have growth in this contract — but if I access it, I’m hit with taxes.”

Meanwhile, they’re aging, and the threat of long-term care looms larger by the year. But traditional LTC insurance may feel like a gamble or might not even be available.

🧾 Stat to share:
The average 65-year-old woman has a 52% chance of needing two or more years of long-term care. For men, it’s about 32%.⁺
Yet only 7 million Americans have traditional LTC insurance — and that number is shrinking.

The Annuity Angle:

Thanks to the Pension Protection Act of 2006, clients can reposition an existing annuity into a new annuity with built-in LTC benefits — and use the gains 100% tax-free if used for qualified care expenses.

This is called a 1035 exchange into an asset-based LTC annuity.

Here’s how it works in simple terms:

• The client exchanges their existing non-qualified annuity (with taxable gains) into a new PPA-compliant annuity.

• The new annuity offers a multiplier of benefits for LTC — often 2x or 3x the contract value.

• When used for qualified care (2-of-6 ADLs or cognitive impairment), all payments — including gains — are completely tax-free.

Example Advisor Talking Point:

“You’ve built up value in that annuity — but if you use it for anything, you’ll owe taxes on the gains. What if we could turn that growth into tax-free care dollars instead?”

“You don’t pay tax on life insurance when you die. You shouldn’t have to pay tax just to protect your independence while you’re alive.”

When This Strategy Works:

• Clients with existing non-qualified annuities (especially older, underperforming ones)

• Clients who are uninsurable for traditional LTC

• Clients with LTC concerns but no interest in paying premiums

• Pre-retirees or retirees between ages 55–75 in relatively good health

“Oh By the Way…” Client Conversation Nuggets:

“Oh by the way… did you know the IRS lets you use an annuity’s gains completely tax-free if it’s for long-term care?”

“Instead of paying taxes on the growth, you could triple the benefit and use it to stay out of a nursing home.”

Quick Advisor Reminder:

Look for:

• Carrier-approved 1035 process

• Qualified LTC annuity under PPA (not just a chronic illness rider)

• Two pools vs. single pool structures

• Lifetime or limited benefit period (e.g. 6 years)

• Multipliers (e.g. 2x or 3x original value)

Common carriers to explore: OneAmerica, Securian, Global Atlantic, Lincoln (MoneyGuard), Pacific Life, Nationwide

Bottom Line:

This is the perfect pivot for clients who say:
“I don’t want to pay for long-term care insurance I might not use.”

With a PPA-compliant annuity:
✅ You’re not spending more — just repositioning existing funds
✅ You’re turning taxable gains into tax-free benefits
✅ You’re providing protection and control

💬 “It’s your money — let’s make sure it works harder for you if your health ever changes.”