Mutual of Omaha Long Term Care Annuity Review

For individuals who have accumulated savings in certificates of deposit, money market accounts, or existing annuities, and want to leverage those funds for long term care protection, annuity-based hybrid LTC products offer a compelling solution. Mutual of Omaha, one of the most recognized names in insurance, offers a long term care annuity product that combines the safety of a fixed annuity with meaningful long term care benefits. In this review, we take a detailed look at how the product works, its key features, the tax advantages of funding it through a 1035 exchange, and who stands to benefit most.

What Is an Annuity-Based Hybrid LTC Product?

Before diving into the specifics of Mutual of Omaha's offering, it helps to understand how annuity-based hybrid LTC products differ from life insurance-based hybrid products like Nationwide CareMatters II or Pacific Life Premier Care.

A life insurance-based hybrid product is built on a life insurance chassis. If you never need long term care, your beneficiaries receive a death benefit. An annuity-based hybrid product, on the other hand, is built on a deferred annuity chassis. If you never need long term care, your money remains in the annuity and continues to earn interest. At death, any remaining annuity value passes to your beneficiaries.

The key distinction is that annuity-based products are primarily designed for asset repositioning. They work especially well for people who have money sitting in low-yield savings vehicles and want to add long term care leverage without giving up access to their principal.

How Does the Mutual of Omaha LTC Annuity Work?

Mutual of Omaha's long term care annuity is a single premium deferred annuity with an integrated long term care benefit rider. Here is how it works step by step:

1. You make a single premium deposit — The product is funded with one lump sum payment, typically ranging from $25,000 to $500,000 or more. Many clients fund the policy by transferring money from an existing annuity, CD, or savings account.
2. Your money earns a guaranteed interest rate — The annuity portion of the product earns a fixed interest rate, providing predictable, conservative growth of your principal. The rate is guaranteed for a specified period and then adjusts based on current rates, subject to a minimum guaranteed rate.
3. An LTC benefit pool is created — Based on your age, health, and deposit amount, the product creates a long term care benefit pool that is a multiple of your premium (typically 2x to 3x). This means a $100,000 deposit could create $200,000 to $300,000 in long term care coverage.
4. LTC benefits are paid when needed — If you are certified as chronically ill (unable to perform two or more activities of daily living or suffering severe cognitive impairment), the product begins paying monthly LTC benefits. Benefits can be used for home care, assisted living, nursing home care, and other qualified services.
5. Full liquidity of your principal — Unlike life insurance-based hybrids where surrendering the policy ends your coverage, annuity-based products generally allow you to withdraw your original premium at any time (subject to potential surrender charges in the early years). This provides a level of liquidity and flexibility that many clients find reassuring.

Key Features of the Mutual of Omaha LTC Annuity

Single Premium Simplicity

The single premium design makes the Mutual of Omaha LTC annuity straightforward to fund. There are no ongoing premium payments to track or worry about. You make one deposit and your coverage is in place for life. This is especially appealing for retirees who prefer simplicity and have a lump sum available.

LTC Benefit Multiplier

The LTC benefit multiplier is one of the most important features of any hybrid product. With Mutual of Omaha, the multiplier is determined by your age and health at the time of application. A healthy 55-year-old might receive a 3x multiplier, turning a $100,000 deposit into $300,000 of long term care coverage. Older or less healthy applicants may receive a lower multiplier, but the leverage is still significantly better than self-insuring.

Guaranteed Interest Earnings

The annuity component earns a guaranteed fixed interest rate, meaning your principal grows over time regardless of market conditions. This makes the product a safe alternative to CDs or savings accounts, especially when you factor in the added LTC benefit leverage.

Access to Your Money

A significant advantage of the annuity-based approach is that your principal remains accessible. While there may be surrender charges in the first few years (typically 5 to 10 years), you can generally access a portion of your funds without penalty. After the surrender charge period, full liquidity is available. This contrasts with life insurance-based products where surrendering the policy means forfeiting your death benefit and LTC coverage.

No Health-Based Premium Increases

Because the product is funded with a single premium, there are no ongoing premiums that can be increased. Your cost is locked in at the time of purchase, providing budget certainty that traditional long term care insurance cannot match.

Qualified Care Settings

Benefits from the Mutual of Omaha LTC annuity can be used across a wide range of care settings:

• Home health care and personal care services
• Adult day care programs
• Assisted living facilities
• Memory care communities
• Skilled nursing facilities
• Hospice care programs

Tax Advantages and 1035 Exchanges

One of the most powerful features of the Mutual of Omaha LTC annuity is its compatibility with 1035 tax-free exchanges. Under Section 1035 of the Internal Revenue Code, you can transfer funds from an existing annuity or life insurance policy directly into a new annuity-based LTC product without triggering a taxable event.

Why 1035 Exchanges Matter

If you own an existing annuity that has significant gains, cashing it out would trigger ordinary income tax on those gains. A 1035 exchange allows you to move those funds into the Mutual of Omaha LTC annuity without paying taxes on the transfer. This is particularly valuable for individuals who:

• Have older annuities with low interest rates and significant tax gains trapped inside
• Want to reposition poorly performing assets into a product that provides both growth and LTC coverage
• Are looking for a tax-efficient way to fund long term care insurance

Tax Treatment of LTC Benefits

Long term care benefits paid from the annuity are generally received income-tax-free under IRC Section 7702B, provided the benefits are used for qualified long term care services. This favorable tax treatment effectively increases the purchasing power of your benefits. As always, consult with a qualified tax professional for guidance specific to your situation.

Pension Protection Act Benefits

The Pension Protection Act of 2006 (PPA) established that long term care benefits paid from annuity-based products would receive favorable tax treatment. This legislation was a game-changer for annuity-based hybrid LTC products, as it made the tax treatment of these benefits equivalent to that of standalone LTC insurance policies. Mutual of Omaha's product is designed to take full advantage of these PPA provisions.

Who Is the Mutual of Omaha LTC Annuity Best For?

This product is particularly well-suited for the following groups:

• CD and savings account holders — If you have $50,000 to $500,000 sitting in low-yield CDs or savings accounts, the Mutual of Omaha LTC annuity can put those funds to work with competitive interest rates plus significant LTC leverage.
• Existing annuity owners — Those with older or underperforming annuities can use a 1035 exchange to move funds tax-free into a product that adds long term care protection.
• Risk-averse individuals — People who prefer guaranteed returns over market-based investments will appreciate the fixed interest rate and principal protection.
• Those who want liquidity — Unlike life insurance-based hybrid products, the annuity-based approach keeps your principal accessible, making it a good choice for people who want LTC coverage but are uncomfortable locking away their funds permanently.
• Retirees who do not need a death benefit — If leaving a life insurance death benefit is not a priority, an annuity-based product may be more efficient than a life insurance-based hybrid.
• Single premium buyers — If you have the funds available for a single lump sum payment and prefer the simplicity of a one-time transaction, this product aligns well with that approach.

Mutual of Omaha: Company Strength and Reputation

Mutual of Omaha has been in business since 1909 and is one of the most recognized insurance brands in the United States. The company holds strong financial ratings, including an A+ (Superior) rating from A.M. Best, which reflects its strong balance sheet, operating performance, and business profile. As a mutual company, Mutual of Omaha is owned by its policyholders rather than shareholders, which aligns the company's interests with those of its customers.

Mutual of Omaha has a long history in the long term care insurance market. While the company has adjusted its product lineup over the years in response to industry changes, its commitment to the LTC space remains strong. The annuity-based hybrid product is a key part of their current offerings and reflects the industry's broader shift toward asset-based LTC solutions.

Pros of the Mutual of Omaha LTC Annuity

• Simple single premium funding — One payment, lifetime coverage. No ongoing premiums to manage.
• Significant LTC leverage — Turn your deposit into 2x to 3x the amount in long term care coverage.
• Full liquidity — Access your principal if needed, with full liquidity available after the surrender charge period.
• 1035 exchange compatible — Reposition existing annuity or life insurance assets tax-free.
• Tax-free LTC benefits — Benefits used for qualified care are generally received income-tax-free.
• Guaranteed interest — Conservative, predictable growth with no market risk.
• Strong carrier — Backed by Mutual of Omaha, rated A+ by A.M. Best, with over 100 years in business.
• No ongoing premium risk — Your cost is locked in at purchase. No rate increases.

Cons of the Mutual of Omaha LTC Annuity

• Single premium required — The lump sum funding requirement means this product is not accessible to those without significant liquid assets available.
• Surrender charges in early years — While your principal is accessible, surrender charges in the first several years can reduce the amount available for withdrawal.
• No death benefit leverage — Unlike life insurance-based hybrids, the annuity product does not include a leveraged death benefit. Your beneficiaries receive the remaining annuity value, not a multiplied death benefit.
• Limited growth potential — Fixed interest rates provide safety but may underperform compared to market investments over longer time horizons.
• Medical underwriting — Applicants must qualify medically. Those with significant health conditions may be declined or receive reduced LTC benefit multipliers.
• Inflation risk — Depending on the inflation protection options selected, benefits may not fully keep pace with rising long term care costs over time.

Annuity-Based vs. Life Insurance-Based Hybrid LTC: Which Is Right for You?

Choosing between an annuity-based product like Mutual of Omaha's and a life insurance-based product like Nationwide CareMatters II depends on your priorities:

• Choose annuity-based if liquidity, asset repositioning (especially via 1035 exchange), and conservative growth are your top priorities.
• Choose life insurance-based if leaving a tax-free death benefit to your beneficiaries is important and you want maximum LTC benefit leverage.
• Consider both if you have a mix of assets — some couples fund one product with an existing annuity (1035 exchange into an annuity-based hybrid) and another with cash (into a life insurance-based hybrid) to get the best of both worlds.

How to Get Started

If the Mutual of Omaha Long Term Care Annuity sounds like a good fit for your situation, the next step is to speak with a licensed insurance professional who specializes in hybrid LTC products. They can help you determine the optimal deposit amount, review your eligibility, and guide you through the 1035 exchange process if applicable.

The application process is straightforward: you complete a simple application, go through a brief medical review, and once approved, fund the policy with your single premium. Most applications are processed within two to four weeks. Remember that applying younger and in good health will yield the most favorable LTC benefit multipliers, so there is a real advantage to planning ahead.