According to AARP, only a small fraction of people who will need long term care have purchased any long term care insurance. Those who have not should be aware of the Pension Protection Act (passed in 2006) that went into effect in January of 2010.

The Pension Protectiuon Act allows people to trade in their existing life insurance or annuity policies for long term care insurance policies on a tax-free basis. It is a tax free “swap” of one insurance product for another.

It is not uncommon for people who have built up equity in a life insurance or annuity policy to feel they no long need the coverage. Their childen are now grown and supporting themselves, for example, or their spouse has gone back to work now that the kids are out of the house. However, in the past, if they had tapped into the cash value of their unneeded policies, the proceeds were taxed as regular income. As of January, 2010, there will be more planning opportunities to fund long term care expenses on a tax free basis.

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