The Pension Protection Act of 2006 created tax incentives for the creation of hybrid long-term care insurance policies.
The Act also provides the basis for a tax free exchange of a life insurance or annuity contract for a long-term care policy.
The exchange would be conducted through a Section 1035 exchange. Consumers and their financial advisors will be able to conduct such exchanges beginning in 2010.
The details are complicated, but there is a good, in-depth article referenced below that discusses various aspects of the issue.
Source: Bank Investment Consultant
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