Will Secure 2.0 Increase Long-Term Care Insurance Sales?

What You Need to Know

Section 334 of Secure 2.0 provides a break for retirement plan users who use plan assets to pay for long-term care.
The section will not help LTCI buyers reduce ordinary federal income taxes.
Raymond Lavine suggests that other changes could do more to boost client interest in long-term care planning.

The big new federal retirement law includes a provision that looks as if it should help long-term care insurance sales.

But Raymond Lavine, a long-term care planner based in Gig Harbor, Washington, said he’s not sure how the provision — Section 334 of the Setting Every Community Up for Retirement Enhancement 2.0 (Secure 2.0) Act of 2022 — will really affect long-term care planning.

“It’s too early to know whether this will encourage people to talk to wealth, financial advisors or LTC agents about LTC benefits,” Lavine said in an email interview.

What It Means

Persuading clients to plan for long-term care costs might continue to be difficult.

The New Rules

Secure 2.0 is part of the big spending bill that President Joe Biden recently signed.

The provision will give people with individual retirement accounts or 401(k) plans the ability to use up to $2,500 in account value per year to pay for stand-alone LTCI coverage, or life insurance policies or annuity contracts that provide long-term care benefits, without paying penalties on the withdrawals.

But, when consumers are filing their federal income taxes, they will have to include any LTCI premium cash taken out of traditional IRAs or traditional 401(k) plan accounts in their taxable income.

A Market Shift

The provision might give clients an incentive to pay for LTCI or life-LTC or annuity-LTC hybrids, but an ordinary tax deduction would likely be more powerful, Lavine said.

“Owning a personal LTC policy is not popular,” he said. “Health assessment is part of whether people qualify. Premiums are higher than 12 years ago.”

In the past, he said, long-term care policies were for low-income people and middle-income people. Now, LTCI and LTC hybrids are aimed at more affluent people who are in reasonably good health and visit their doctors at least once a year.