A regulator sets out rules for annuity-LTC hybrid marketing. (AP Photo/John Amis)

A South Dakota official has come out with advice for annuity contract providers who want to market annuity-long-term care hybrids.

Merle Scheiber, director of the South Dakota Division of Insurance, gives the recommendations in Bulletin 12-04, a document aimed at companies that sell annuity contracts that offer access to annuity benefits with “long-term care type” triggers.

The advices applies to insurers that want to sell annuity-LTC hybrids without the products having to comply with the state’s health insurance and long-term care insurance (LTCI) laws.

In South Dakota, a state law sets the rules for health insurance policies, and a regulation sets the rules for LTCI.

The new bulletin applies to any type of LTC-linked annuity benefit, including withdrawal rights and surrender charge waivers, and it applies to the LTC-linked benefits whether the benefits are built into the basic policy or provided through riders, endorsements or amendments.

To keep the LTC-linked benefits from being treated as health insurance or LTCI benefits, a South Dakota annuity provider must meet 5 conditions. The issuer must:

  • Avoid focusing on LTC-type triggers in advertising.
  • Refrain from basing any LTC-linked benefits to the cost of LTC services.
  • Stay away from describing the LTC-linked annuity benefit as a form of LTCI coverage or nursing home insurance.
  • Include a disclosure statement emphasizing that the LTC-linked benefit is not LTCI.
  • Package the LTC-linked benefits with other types of special benefits linked to triggers other than LTC triggers.

“If the annuity contract includes other triggers, but the rider, amendment, or endorsement to such annuity contract only include one long-term care type trigger, the rider, amendment or endorsement will be considered to be the only trigger,” Scheiber says.

It appears that, if an insurer makes an LTC-linked benefit the only benefit with a special trigger in an annuity contract or an annuity rider, South Dakota will treat the contract or the rider as a form of LTCI.

The bulletin will apply to any annuity contract, rider, amendment or endorsement that includes LTC-linked benefits and is issued in South Dakota on or after Jan. 1, 2013, Scheiber says.