Long-Term Care Insurance Provisions in the Pension Protection Act Take Effect January 1, 2010

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
long-term care 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 for long-term care 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
no long-term care 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)

www.knudsenlaw.com