o The annuity market could see a fresh wave of innovation with so-called combination or linked products, which package an annuity with an option that provides contract-holders with accelerated access to funds to cover costs related to long term care.

o Federal tax provisions enacted in 2006 (and due to take hold in 2010) that provide favorable treatment to combination annuity-long term care products are expected to kick-start growth in that segment of the market. Under the law, the cost of qualified long term care can be covered using the cash value of life insurance and annuity contracts on a before-tax basis. To date, the few available linked annuity products come on a fixed annuity chassis.

o “The big issue with that type of product is how to price it attractively,” says Scott DeMonte, an annuity market analyst
at Financial Research Corp., “which is probably why we haven’t seen much development in that space yet.” Still,
fellow annuity analyst Jon Gabriel of Kehrer-LIMRA, says activity in the linked product arena likely will increase as financial markets stabilize and the implementation date of the new tax provisions draws closer.