Premiums for long-term care insurance can be costly. However, for people thinking about purchasing long-term care insurance a tax-free exchange can help pay the premiums. A person considering this option should evaluate the different long-term care insurance options. Some other factors a person should reflect on include: costs, benefits, tax effects, and the impact on the policy or annuity. The IRS permits the exchange of a life insurance policy for an annuity contract without acknowledging taxable gain. Recently, legislators made it permissible to make tax-free exchanges of an annuity or life insurance policy for a long-term care insurance policy. A partial tax–free exchange can use part of an annuity or a life insurance policies worth to fund a new annuity or policy. However, the exchange must be a direct transfer of funds from one provider to another to be tax-free. The advantage to the tax-free exchange is it supplies funds for the care policy while simultaneously yielding tax benefits. Additionally, a tax-free exchange can allow a taxable gain to be engrossed by long-term care premiums.