The IRS recently gave a boost to "hybrid" annuity products with optional long-term care chronic benefit riders.
In March, the IRS issued Private Letter Ruling (PLR) 201105001, affirming that a long-term care chronic illness rider attached to a variable or fixed annuity contract will be treated as an insurance contract under Revenue Code section 7702B.
Long-term care/chronic illness benefits paid out under the rider will be received tax-free. This PLR pertained only to riders issued by stock life insurance companies, and it applies to riders in which long-term care risk is actually shifted from the taxpayer to the insurance company – i.e., payouts don't merely represent withdrawals of VA account balances.
Recommended For You
Tax-free status of these hybrid products was first authorized under provisions of the Pension Protection Act of 2006 that took effect on January 1, 2010. According to the AALU, the new PLR extends those provisions to riders that pay out during a chronic illness lasting up to 72 months. Most long-term care annuity riders issued since PPA took effect have limited payouts to shorter periods.
You can view AALU's summary with a link to the full PLR here: www.pinnacleifs.com/static/news/aalumarch.pdf
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
