The addition of the QLTC rider allows the life insurance contract to be accessed for living benefits by paying down the face amount when the insured qualifies for LTC benefits.
The PPA modified the rules that govern tax-free exchanges of life insurance and annuity contracts into updated contracts that include the QLTC rider or into traditional stand-alone LTCI.
Monthly QLTC rider fees on these types of policies are taken from cash values, and these internal policy distributions are viewed as distributions from the policy.
However, the provisions of the PPA change the tax treatment of such distributions that are used to pay rider fees for QLTC riders, and such distributions are no longer treated as distributions of income.
A life insurance policy without a long-term care rider can be exchanged for a life insurance policy with a QLTC insurance rider.
Conversely, a life insurance policy with a QLTC insurance rider can be exchanged, tax-free, for a life insurance policy without a long-term care rider.