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R.I.P. combo annuities

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Several years ago, I attended one of the most exciting CE courses of my life. It emphasized a new type of product that was going to be hot. Because of legislation that was passed shortly before the class, this new type of annuity promised to be the messiah of the insurance industry: the combo annuity.

The combo annuity simply combined an annuity with long-term care (LTC) insurance coverage. Prior to Congress’ passing of the Pension Protection Act of 2006 (the PPA), the LTC component’s funding source (the gains on the contract) were considered a taxable distribution. This made a great concept considerably less attractive. However, the favorable tax treatment provided by the PPA promised to multiply sales of these much-needed products. 

If you need guaranteed lifetime income and a vehicle that addresses the risk that you may end up confined to a nursing home or a care facility, the combo annuity is strategically positioned to address these concerns, all the while providing a tax-deferral feature. Plus, combo annuities don’t have the ugly “use it or lose it feature” associated with standalone LTC. With so many companies exiting the LTC market, it seemed that sales of these products would explode overnight. But over the course of six years, sales of combo annuities have dropped off the map. 

Very few insurers have shown interest in offering the products. In fact, when consulting with my insurance company clients, I actually advise them not to waste their time and efforts with combo annuities. Sure, it’s an administrative nightmare and the underwriting challenge causes some to pause. However, it’s the distribution methods used to sell annuities that are resulting in a lukewarm response to these products. 

Leave their comfort zone?

The lion’s share of fixed and indexed annuity salespeople sell nothing more than annuities. No long-term care coverage, no disability insurance, and no life sales; the underwriting process required for these products is just too intimidating to transactional agents. In addition, it is hard to convince salespeople that are paid commissions within 24 hours of submitting an application to wait (possibly weeks) until the combo annuity is underwritten and approved. These two lousy hurdles are enough to stop most insurance agents that sell annuities from leaving their “annuity comfort zone.”

Sadly, this has led to an untimely demise for combo annuities. Now, add that LTC benefit to a life insurance policy and sales will go sky high. These agents are used to the underwriting process and the delays associated with it. However, if you are one of the few annuity agents that would utilize this tool, I’d stop holding my breath for more product choices. Until we build a better mousetrap for distributing annuity products, this product will not be resurrected.

Fixed annuity salespeople balk at the underwriting required for LTC.

Sheryl Moore is president and CEO of and, indexed product resources in Des Moines, Iowa. She may be reached at [email protected].



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