Uncle Sam sweetens pot for long-term care insurance shoppers

Uncle Sam has some good news for you if you're in the market for a long-term care insurance policy. If you own an annuity or life insurance policy, you may now be able to swap all or some of the policy for a long-term care policy -- without being taxed. You may also be able to fully exchange the policy to purchase one of the new "hybrid" insurance and annuity contracts that include a long-term care insurance policy. These hybrid policies allow you to make withdrawals tax-free so long as the withdrawn funds are being used to pay for long-term care.

Sounds like Uncle Sam is really sweetening the pot for those who want to  preserve assets and make sure their long-term care costs are covered. But before you make any move, there are some issues to consider.

First, the new regulations apply only to annuities that have been purchased with after-tax dollars - in other words, non-qualified products. You should also determine if your current annuity or life insurance policy has a benefit that you don't want to give up, like a death benefit. Lastly, if you have an annuity, there may still be surrender charges. Talk to your certified elder law attorney about whether exchanging your life insurance policy or annuity for a long-term care policy is a good move for you.