Part of our guide: Long-Term Care Insurance: Costs, Options and Planning →
Many clients in their 70s and 80s want long-term care protection but can’t qualify for traditional coverage or don’t want to pay premiums they may never use. Many of them also own nonqualified annuities they never plan to annuitize. A hybrid LTC annuity can connect the two.
Key takeaways
- Hybrid LTC annuities typically have easier underwriting than traditional LTC insurance, making them a fit for clients about 70–85.
- Under the Pension Protection Act, existing nonqualified annuities can be exchanged tax-free (1035) into qualifying LTC annuities.
- Qualified LTC benefits from these contracts are generally received income-tax-free; if care is never needed, the value passes to beneficiaries.
Many clients hold an annuity as an emergency fund for “if I ever need help.” A hybrid LTC annuity puts a tax-efficient plan behind that intention.
The long-term care catch-22
Americans 85 and older are among the fastest-growing age groups, yet few are prepared for a care event. Older clients often can’t qualify for traditional LTC coverage, find it too expensive, or don’t want to pay for something they may not use.
Why nonqualified annuity owners are ideal candidates
Most nonqualified deferred annuities are bought for tax-deferred growth and never annuitized. Ask these clients what would cause them to spend the money. Many say it’s an emergency fund in case they need help someday. Using it for care directly, though, can trigger taxes on the gain.
How the Pension Protection Act helps
Since 2010, provisions of the Pension Protection Act of 2006 allow:
- Tax-free 1035 exchanges from an existing annuity into a qualifying annuity with LTC benefits
- Qualified LTC benefits from these contracts to be received generally income-tax-free, even when funded by the annuity’s gain
- Charges for the LTC coverage to reduce the contract’s cost basis rather than being treated as taxable withdrawals
Only qualifying products receive this treatment, so product selection matters. Confirm specifics with a tax advisor.
Easier underwriting
Hybrid LTC annuities usually have simpler underwriting than traditional LTC insurance, which makes coverage available to clients who might otherwise be declined. If care is never needed, the annuity value passes to beneficiaries. For life-based alternatives, see asset-based LTC client profiles.
Frequently asked questions
What is a hybrid long-term care annuity?
An annuity that provides a multiple of its value for qualified long-term care expenses, with any remaining value passing to beneficiaries.
Can I exchange an existing annuity for long-term care coverage?
Yes. The Pension Protection Act allows tax-free 1035 exchanges into qualifying annuities with LTC benefits.
Is it easier to qualify for an LTC annuity than LTC insurance?
Usually. Hybrid LTC annuities often have simplified underwriting, making them an option for older clients.
Reviewed by Tim Fuller on 2026-09-25
Tim Fuller
President, SRS Inc.
Tim leads SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency), connecting independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners.
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