Proposals are being drafted by the ACLI for Ways and Means
Tax law changes that would provide incentives for long term care insurance offered in combination with other insurance products and benefits are being developed for consideration by House Ways and Means Committee staffers, National Underwriter has learned.
The American Council of Life Insurers confirmed it is drafting a proposal for consideration by the committee. The proposal will suggest changes in tax laws needed to allow an LTC contract to be combined with other insurance contracts to provide cash value to the consumer in the event LTC coverage is not needed, an ACLI staff official confirmed.
The proposal, which many in the industry are hoping will soon be submitted to Rep. Bill Thomas, R-Calif., chairman of Ways and Means, also would outline changes in tax laws that would facilitate transfer of funds, without paying taxes, between LTC contracts and such other industry products as life insurance, annuities and disability contracts.
A draft of the proposal states that changing tax laws to add a cash value feature to long term care by permitting LTCI riders on annuity contracts, LTCI riders on life insurance contracts that provide comparable benefits to stand-alone LTCI contracts, and tax-free exchanges of life insurance and annuity contracts for LTCI contracts “will provide Americans with the flexibility they desire.”
The industry is enthusiastic about the intra-industry talks being held under the auspices of the ACLI to develop proposals making LTCI more attractive to consumers.
One industry lobbyist, who asked not to be identified, characterized the proposals on LTC “as providing a good opportunity to develop new products that really help people.” This person said the chances of getting something done are “very real,” adding the proposals “provide new flexibility to people who need to manage their risks.”
But the task is daunting. Currently, LTC contracts are not subject to taxation when they are treated as accident and health insurance contracts, and benefits received are treated as A&H insurance benefits.
But those LTC contracts that provide a cash value or other monies that can be paid, assigned, pledged as collateral, or borrowed, are not treated as “qualified” LTC contracts, an industry official said. As a result, any benefits received under a cash value LTCI contract or rider may be fully taxable.
Inside buildup in a life insurance policy with an LTC rider is non-taxable under a 1996 change in the law, the IRS has ruled, but only under limited circumstances, an industry official said.