If you have a client with an annuity needing to address the financial risk of expensive long-term care (LTC), there’s a smart strategy involving the annuity’s gains that may deliver significant tax savings.
Gains inside an annuity can be withdrawn tax-free when those dollars are used to pay for qualified long-term care (LTC) expenses.
On its own, that’s not groundbreaking — but paired with a 1035 exchange, it opens a major opportunity for clients sitting on large, deferred gains in existing annuities.
By repositioning those annuity dollars into an asset-based LTC solution, clients can turn idle, taxable money into tax-free benefits they can actually use if care is needed.
How to Turn an Annuity’s Deferred Gains Into Tax-Free LTC Benefits for Clients
A 1035 exchange lets clients move cash value from one annuity to another without triggering taxes.
Combine that with an LTC-eligible hybrid annuity, and you’ve got a smooth, tax-efficient transition:
The transfer is tax-free under 1035 rules
The gains remain tax-deferred
When used for qualified LTC, those gains are paid out tax-free
It’s a simple, compliant way to help clients convert dormant annuity value into a living benefit — one that protects their income, family, and retirement goals.
Who Is the Ideal Client for Annuity-Based LTC Hybrids?
Long-term care costs weigh heavily on the minds of many pre-retirees and seniors, multiple surveys show. Long-term care planning is the part of every sound retirement plan, presenting an opportunity for today’s insurance agents and retirement planning advisors to meet this market demand and grow their businesses. Annuity-based LTC hybrids are one of the many innovative LTC solutions available for agents and advisors to tailor solutions to client needs.
Clients who are ideal candidates for annuity-based LTC hybrids include:
Already own non-qualified annuities with significant growth
Are between the ages of 65 and 80 — the typical annuity owner demographic
Expanding your reach with clients often considered too old or uninsurable
Delivering real value to clients who’ve already built wealth but lack protection for future care needs
For many clients, it’s not about buying something new — it’s about repositioning what they already own to work harder and smarter.
Asset-Based LTC Updates & Annuity Strategies
An LTC industry veteran explains how simpler plan designs, competitive pricing and concierge-style services can help sell today’s annuities, including a focus on asset-based solutions and annuity-driven strategies. You’ll see how these products offer special appeal to clients with existing annuities, clients wary of premium shocks, or those who prefer flexible, asset-based LTC solutions.
Reimagining Long-Term Care: A Smarter Way to Start the Conversation
Learn how to reframe LTC planning as a positive, practical part of retirement readiness — not a difficult or emotional topic. You’ll walk away from this on-demand video with clear language, new client strategies, and confidence to make LTC an essential part of your planning process.
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