Linked-benefit may also be called "hybrid" or "asset-based" LTC insurance
What is Linked-Benefit LTC Insurance?
The "new kind" of LTC insurance is known as a "linked-benefit" policy.
Simply, it combines - or links - LTC insurance benefits with another type of insurance like life insurance or an annuity. It provides a pool of money to pay for long-term care expenses, but if you never need care your heirs receive a life insurance death benefit or the cash value from an annuity.
"What if I never need long-term care? All those years of premiums paid are wasted."
This is a common objection to buying LTC insurance, and a linked-benefit LTC insurance policy may be the answer. Here are some examples:
Life insurance with an extended LTC insurance benefit pool
This is the most common type of linked-benefit LTC insurance. In addition to letting a policyholder use up the death benefit to pay for long-term care, there is an "extended" LTC benefit, or an extra "bucket" of LTC money that extends the LTC benefits past the exhaustion of the base policy's death benefit. If care is never needed, there is a death benefit, and the policy will also guarantee an 80% to 100% return of your premium if you would ever decide to cancel the policy.
These policies are designed to maximize the LTC benefit and should be used when the primary planning need is for long-term care funding. Premiums are typically paid as a single lump-sum, or spread out over 10 years. These plans have guaranteed premiums and guaranteed benefits - another advantage versus traditional LTC insurance.
A $60,000 single premium may create a $120,000 death benefit and a $250,000 total LTC benefit. If a 4-year benefit option is chosen, the policy would provide $5,208 per month for long-term care expenses with no increase for inflation.
Built-in benefit increases for inflation are available as an option, but are rarely quoted. It is very important to properly compare the actual costs of these plans when comparing to a traditional LTC insurance policy that does automatically increase for the rising cost of care. Apples-to-apples, these plans cost much more than traditional LTC insurance because you're also buying life insurance, guaranteed benefits, and the guaranteed return of cash value.
Life insurance that lets you use the death benefit for LTC
Many insurance companies are adding a LTC insurance "rider" to their traditional life insurance policies. The LTC rider is a type of "accelerated death benefit" and simply makes the death benefit available for long-term care expenses at a set percent each month; there is no additional money for long-term care beyond the death benefit. This type of policy is only recommended for people who primarily need life insurance, but want some LTC coverage just in case.
A life insurance policy with a $250,000 death benefit and a 2% LTC benefit rider would provide $5,000 per month ($250,000 x 2%) for a total of 50 months.
Inflation increases are not available; the benefit is fixed. Premiums may or may not be guaranteed depending on the type of life insurance.
Some companies offer a similar "chronic illness" rider which is not qualified LTC insurance, and it's illegal to sell it as LTC insurance. The benefit triggers may be more restrictive than a qualified LTC insurance rider, and the benefits are not guaranteed as they are calculated at the time of claim.
Deferred annuity that doubles or triples your money if you need LTC
This is a great policy to use if you have an existing annuity that can be rolled over tax-free into a new annuity with LTC benefits. You still have your annuity cash value to use in all the ways an annuity can provide income or survivor benefits, but then there's a "boost" if long-term care is needed.
$100,000 premium paid into the annuity produces $300,000 of total LTC benefits. (Note that $100,000 of these benefits are simply the return of your own cash value.) The LTC benefit may be paid out over a 3 or 4 year benefit period. $300,000 divided by 4 years would provide $6,250 per month for long-term care.
These plans typically do not include inflation. There are very few of these on the market today because interest rates are so low. The internal "cost" of the extra benefits for LTC is taken from the interest earnings, so an annuity earning 2% may actually only produce less than 1% in actual cash earnings after the LTC insurance charges are deducted - the LTC benefit is never "free".
A variation requires you to use all your own annuity money first, over three years, but then you can have an unlimited LTC insurance benefit kick in after. This type of annuity-LTC plan does require an extra premium to be paid for the benefit extension.
ComfortLTC offers all of these different types plans and can show you options from different companies as well. We'll even help you fairly compare a linked-benefit solution to traditional plans.
Examples shown are not reflective of any particular individual and are for illustrative purposes only. Not all options may be available in all states. Contact us for more information and for a personalized illustration including disclosures and exclusions.