{"id":4733,"date":"2018-06-12T08:35:38","date_gmt":"2018-06-12T13:35:38","guid":{"rendered":"https:\/\/www.figmarketing.com\/blog\/?p=4733"},"modified":"2019-05-31T07:56:22","modified_gmt":"2019-05-31T12:56:22","slug":"use-fixed-indexed-annuities-to-pay-for-long-term-care-insurance-with-this-tax-efficient-strategy","status":"publish","type":"post","link":"https:\/\/www.figmarketing.com\/blog\/use-fixed-indexed-annuities-to-pay-for-long-term-care-insurance-with-this-tax-efficient-strategy\/","title":{"rendered":"Use Fixed Indexed Annuities to Pay for Long-Term Care Insurance with This Tax-Efficient Strategy"},"content":{"rendered":"

Clients are always looking to protect their futures. In the case of an unexpected long-term care event, the primary solution for their protection is long-term care insurance (LTCI). That doesn\u2019t mean paying for it is a walk in the park, though.<\/p>\n

To pay the LTCI premiums, there are many routes an advisor and client can go. But let\u2019s throw in another wrench \u2013 what\u2019s a tax-efficient way to pay for LTCI?<\/p>\n

One potential option \u2013 although not for everyone \u2013 is to pay LTCI premiums using an annual partial 1035 exchange from a non-qualified, deferred annuity \u2013 also known as a fixed indexed annuity, or FIA.<\/p>\n

Before we dive any deeper, always encourage your clients to spend time with both you and<\/em> their tax professional to go over any insurance needs and to explore all options (ideally tax-efficient) to pay for their LTCI premiums. Now, let\u2019s break down an example.<\/p>\n

Sales Strategy:<\/u> Pay for LTCI Premiums with an Annual Partial 1035 Exchange from a Non-Qualified, Deferred Annuity<\/strong><\/h4>\n

Client Overview<\/h2>\n

Michael, who is age 61, has recently decided that he needs to protect himself and his family in case he endures an unexpected long-term care event. After reaching out to his financial advisor, he understands that self-insuring isn\u2019t for him \u2013 leaving LTCI a potential option.<\/p>\n

\"man<\/a><\/p>\n

After discussing the policies with his advisor, they compute that the premium needed for Michael\u2019s LTCI is going to cost around $3,000 annually. And even though Michael has over $1 million in total net worth, he wants to find a tax-efficient way to fund his LTCI premiums, without impacting his current cash flow.<\/p>\n

His accountant advised him that he\u2019s unable to deduct any of his premiums from his federal income tax return, but Michael remembered his un-needed life insurance policy around $75,000 in cash value and $100,000 in death benefit.<\/p>\n

Ideally, Michael wants to do away with this policy, but at the same time, doesn\u2019t want the roughly $48,000 of taxable gain if he surrenders it. Here\u2019s where the strategy comes in.<\/p>\n

Strategic Overview<\/h2>\n

Let\u2019s flip the setting. Michael\u2019s \u201cfinancial advisor\u201d is you<\/em>. If this was the situation you were dealing with, what\u2019s a tax-efficient way to go about paying for Michael\u2019s LTCI premiums using a non-qualified, deferred annuity?<\/p>\n

Here\u2019s the step-by-step approach:<\/strong><\/h5>\n

1. First, schedule an appointment with Michael to go over options in-person. It can do wonders for lending trust and allowing your client to feel more comfortable with making a big decision.<\/p>\n

2. Once you\u2019re sitting down with your him, explain that there\u2019s a tax-efficient strategy that would allow him to reduce much of the $48,000 taxable gains from his life insurance policy that\u2019s no longer needed.<\/p>\n

3. With his approval to reallocate his life policy into LTCI, you\u2019ll want him to apply for an individual LTCI policy with an annual premium of $3,000 \u2013 an understanding he’ll be paying his first premium out-of-pocket.<\/p>\n

\"LTC<\/a><\/p>\n

4. Now, apply for an FIA that offers an optional income rider, funding this with a full 1035 tax-free exchange using his life insurance policy. In this situation, a full $73,000 comes over to the FIA, along with with the income rider protection: $25,000 in cost basis, and $48,000 of taxable gain.<\/p>\n

5. Flash forward one year, and Michael begins his lifetime withdrawal income that is funded by the annuity and rider. Based on being 62 years old, he gets around $3,700 annually until death. Not only does this cover his LTCI premium, but also gives him an extra $700 in his pocket.<\/p>\n

6. Setting up Michael like this, you\u2019ve made it so $3,000 of each payment is sent as a partial 1035 exchange for his LTCI premium payment. Now, some things to note:<\/p>\n