The IRS recently gave a boost to "hybrid" annuity products with optional long-term care chronic benefit riders.

In March, the IRS issued Private Letter Ruling (PLR) 201105001, affirming that a long-term care chronic illness rider attached to a variable or fixed annuity contract will be treated as an insurance contract under Revenue Code section 7702B.

Long-term care/chronic illness benefits paid out under the rider will be received tax-free. This PLR pertained only to riders issued by stock life insurance companies, and it applies to riders in which long-term care risk is actually shifted from the taxpayer to the insurance company – i.e., payouts don't merely represent withdrawals of VA account balances.

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