How does Linked Benefit Long-Term Care Insurance work?
Unlike Traditional Long-Term Care Insurance (LTCI), a Linked Benefit Long-Term Care Insurance policy is a different insurance product, such as life insurance, with a Long-Term Care Insurance rider attached. This has become a popular approach. Essentially, if you do not need long term care, your heirs can still receive a benefit. Also, even if you need some care, if there is something left over, it could also go to your heirs.
Linked Benefit Long-Term Care Insurance policies pay for your care due to a chronic illness or injury. However, the long-term care benefit is usually a fraction of the total death benefit paid to the insured to cover long term care expenses. Also, there are usually activities of daily living or severe cognitive impairment qualifications to receive long term care benefits. If you meet the requirements, you may be eligible to receive a portion of the policy death benefits tax-free for your long-term care needs.
Paying for a Linked Benefit Plan
You can pay for a Linked Benefit policy:
- With an annual payment every year, or for a limited period of time.
- With a single payment.
- A cash value trade or exchange from an existing cash value policy.
- A combination of different payment methods.
Unless you are focused on choosing specific terms of coverage, your long-term care insurance benefits are determined by your age and the amount you transferred and/or pay.
Premiums for long-term care insurance rider are paid by automatic withdrawals from the cash values.
Annual Payments
You can pay for a Linked Benefit Long-Term Care policy with recurring premiums every year (for life). Most people prefer paying for a limited time such as for ten years or to age 65.
Single Payments
You can pay for a Linked Benefit Long-Term Care policy with a single payment from a bank account or Certificate of Deposit.
Trade or Exchange
You can pay for a Linked Benefit Long-Term Care policy with a transfer of cash value from an existing permanent life insurance policy via a 1035 exchange.
Combination of Approaches
You can pay for a Linked Benefit Long-Term Care policy with a combination of recurring premium, single premiums, and/or a trade or exchange.
Benefits
- Safety – Your cash value is free from market risks.
- Liquidity – Depending on the policy, cash values may be accessed easily and quickly with no or low withdrawal penalties.
- Tax-Advantaged Growth – Cash value grows on a tax-deferred basis, which can allow your cash value to grow faster than funds that are taxed annually.
- Death Benefit – The death benefit is paid usually tax-free directly to your named beneficiaries, bypassing probate.
- Long-term Care Benefits – These benefits can cover home health care, nursing home care, and adult daycare. Benefits increase as your annuity value increases.
- Premium Guarantee – Unlike Traditional Long-Term Care Insurance where the premium is Guaranteed Renewable and could increase, the price of a Linked Benefit Long Term Care policy is set, is not Guaranteed Renewable, and do not increase.
Taxation
Long-Term Care Insurance riders are intended to be Qualified Long-Term Care Insurance Contracts under Sections 26 U.S.C. § 7702(b) of the Internal Revenue Code with benefits paid out tax-free.
You might want to compare companies
There are a few rating services that analyze the financial strength of insurance companies. The financial strength of an insurance company is a very important factor to consider when purchasing long term care insurance. Claim payments are backed by the financial strength and claims-paying ability of the insurance company or companies you chose. Hence, it may be in your best interest to choose a highly rated insurance company or better yet, more than one company. You can check ratings from sources like AM Best, Fitch, Moody’s and Standard and Poor’s.
In Conclusion:
Linked Benefit Long-Term Care Insurance may provide payments for care due to a chronic illness or injury. As a result, anything not used for your care can be passed on to your heirs in a death benefit. You can pay for it with a single payment or multiple payments with the premium set issue that does not have an option to increase.
Finally
If you have any questions about Linked Benefit Long-Term Care Insurance or Long-Term Care Insurance riders or just need a little guidance, feel free to contact us. We know long-term care planning can be confusing. It is important to get the facts before you make any long-term decision.