Tax Deductability of Life/ltc Combo Products

[CFP83]

I have recently made several nice sized sales of John Hancocks life products, which allows you to add a ltc rider. One of these recent policies was on a 62 year old male and provided $250,000 of death benefit and $500,000 of ltc dollars. Total annual premium is $6800

My question is how much of this premium is deductable? I am in Ohio, which is a "partnership state". Deductability of ltc premiums is fairly new, and combo products are even newer so I am not sure if this issue of how much of the premium is deductable has even been addressed.

Thanks in advance for your feedback here.

 

[Franz Kafka]

My question is how much of this premium is deductable?

If the features of the rider qualifies it as a TQ (tax-qualified) LTCi, then it qualifies as sec 213 qualified medical expense. There's a cap, though, based on age (google for 2010 limit). The policy will tell you exactly how much of annual premium is used to pay for LTC rider.

I am in Ohio, which is a "partnership state".

Partnership has nothing to do with tax-qualified.

Deductability of ltc premiums is fairly new

Only since 96 ..

 

[Justin Bilyj]

I love to tell people who have an HSA to spend their funds on LTC premiums since they are a qualified medical expense. What tax savings that is!! (yes i know about the limits). Especially when they can make catch up contributions to the HSA.

 

[Mr_Ed]

I have recently made several nice sized sales of John Hancocks life products, which allows you to add a ltc rider. One of these recent policies was on a 62 year old male and provided $250,000 of death benefit and $500,000 of ltc dollars. Total annual premium is $6800

My question is how much of this premium is deductable? I am in Ohio, which is a "partnership state". Deductability of ltc premiums is fairly new, and combo products are even newer so I am not sure if this issue of how much of the premium is deductable has even been addressed.

Thanks in advance for your feedback here.

The problem with the Life/LTC combo products is:

1) They are not Partnership Qualified
2) If they do need substantial long-term care, most of the death benefit is nullified.
3) These policies rarely offer inflation protection


If he's healthy, he could have gotten a Partnership Qualified Policy (with inflation protection), for about $5,800 per year, with unlimited long-term care benefits AND all the premiums would be refunded to his heirs.

If he's married, we could have gotten his wife insured as well for just a little bit more premium.

 

[arnguy]

It's deductible!!!!
I am referring to the spelling of the word.

 

[crimsontideagent]

It's on the IRS site, what is deductible - amount that is... and how to figure it.

 

[CFP83]

The problem with the Life/LTC combo products is:

1) They are not Partnership Qualified
2) If they do need substantial long-term care, most of the death benefit is nullified.
3) These policies rarely offer inflation protection


If he's healthy, he could have gotten a Partnership Qualified Policy (with inflation protection), for about $5,800 per year, with unlimited long-term care benefits AND all the premiums would be refunded to his heirs.

If he's married, we could have gotten his wife insured as well for just a little bit more premium.

Thanks for the feedback.

The fact that these policies do not offer inflation protection is a real downside, which I explained in detail with my client.

This client however was one of those types whose main objection to a traditional LTC policy was "I hate the fact that if I don't need long-term care I have wasted my money". The benefit in this LTC/LI product was that in 20 years if he hasn't used any of the long-term care benefit and he dies then his heirs would receive $250,000 of tax free death benefit, and his total premium contributions have only been $136,000. Also, at 82 if he is healthy, he has guaranteed cash values of around $120,000 he has access to.

 

[Mr_Ed]

but if he does need care, the cash value and most, if not all, of the death benefit go pooooooof!

right?

 

[briko3]

Usually these products have a minimum death benefit that won't go away (usually just enough to bury). The rest is just multiplying your dollars. You're making sure that you don't waste your money if you don't need it and you're multiplying the amount you put in if you do.

 

[Mr_Ed]

Usually these products have a minimum death benefit that won't go away (usually just enough to bury). The rest is just multiplying your dollars. You're making sure that you don't waste your money if you don't need it and you're multiplying the amount you put in if you do.

If you do need care, your money is used first. The deposit you put in is used first. So, the single-pay premium deposit (or the annual premiums paid in that build the cash value) are AT RISK.

I think a traditional LTCi policy that GUARANTEES the full refund of ALL the premiums to the heirs is a much better deal for the client.

If they need care, all their premiums are refunded to their heirs.
If they don't need care, all their premiums are refunded to their heirs.

If they need care, they get rich benefits, increasing with the inflation benefit, rather than the much lower benefits in the "LTC Riders" on the life policies.

And, if they live in one of the 31 DRA LTC Partnership states, they get partnership asset protection as well.