Genworth Financial Inc. yesterday released its Total Living Coverage Annuity, a hybrid product that combines long-term-care coverage with an annuity.
This product pairs up a single-premium, non-qualified deferred annuity with a long-term-care rider to provide benefits. It's not the first version of the hybrid annuity for the carrier, as Genworth launched a pilot version in 2008.
Genworth's Total Living Coverage Annuity can be covered through a tax-free 1035 exchange out of an old annuity or life insurance product. It also boasts a simplified underwriting process and optional inflation protection.
The major selling point for the hybrid is that on Jan. 1, a provision in the Pension Protection Act of 2006 kicked in that allows tax-free long-term-care payouts from an annuity. Policies written after the beginning of the year, along with hybrid annuities already in force, will enjoy the tax-free LTC payouts.
The rule also permits Section 1035 tax-free exchanges into the combination products from older annuities and life insurance.
As promising as the PPA provision sounded from a sales point of view, carriers and the American Council of Life Insurers encountered a number of stumbling blocks as they prepared to release products following the Jan. 1 date. These issuesprimarily revolved around interpretations of the tax code when the product paid LTC benefits and how best to manage partial 1035 exchanges.
As a result, there have been a lot of discussions between the life insurance industry and the Internal Revenue Service on how to address the issues.
Meanwhile, broker-dealers thus far have signaled interest in annuity hybrids but are unclear on how to integrate the products into their annuity platforms and how to supervise the business and ensure suitability.