Life Insurance and Annuities and Why Baby Boomers Should Review Theirs Now

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Why should baby boomers review their Life Insurance and Annuities now?

Life insurance is an uncomfortable topic for many, and one that most people avoid like the plague. Annuities have dealt with their own bad press but for completely different reasons. However, the simple fact is that if you have either of these two products and you haven’t reviewed them in a long while, you might be missing out on some valuable benefits. When someone tells me that they have a life insurance or annuity policy I respond by asking if they have the old kind or the new kind. I’ll spend the next few paragraphs explaining what I mean by that.

The life insurance industry has many companies constantly innovating and creating new products to better meet the needs of the customer in hopes of prying them away from their competitors. In response to the Baby Boomer generation’s growing need for long-term care services, companies have created a wide range of life insurance products designed to double as long-term care insurance policies.

These policies work by allowing the insured to accelerate their death benefit during their lifetime to pay for long-term care services, and if they never need those services the death benefit remains intact to be passed on to their heirs. The best part is that these new and improved life insurance contracts can be funded with the money inside of existing permanent life insurance plans without triggering a taxable event. Using what is called a 1035 exchange the money can be easily transferred from one policy to another allowing the policyholder to quickly and easily upgrade their plan*.

The 2006 Pension Protection Act also created some significant tax advantages for owners of existing non-qualified tax deferred annuity policies that Baby Boomers need to be aware of. This act allows for the taxable portion of a non-qualified annuity to become non-taxable if used to purchase long-term care insurance. For example, if you have an annuity with a cost basis of $50,000 and a gain of $20,000, you could withdraw the $20,000 tax free to pay for a long-term care policy.

This law doesn’t apply to owners of qualified annuities (401k, IRA) and so these individuals could not utilize tax free withdraws in this way.

One popular strategy is to transfer the money in the annuity into a new hybrid annuity with a long-term care rider so the invested dollars can be leveraged two or three times for long-term care benefits. In addition to the leverage, the dollars used to pay for long-term care services would be tax free. Because these policies are annuities they often have more favorable underwriting than other life and long-term care insurance plans and can be a great solution for folks who have minor health issues.

Old policies that are underperforming or no longer meeting the objectives they were purchased to meet in the first place don’t have to go to waste. If you have an annuity or life insurance policy contact us today for a free no hassle consultation with Stolly Insurance Group today!


*Upgrading to a new plan will require medical underwriting from the issuing life insurance company.