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Linked-Benefit Long-Term Care Policies: A Smart Alternative to Self-Insuring for Long-Term Care Expenses

December 11, 2020 | Categories: Retirement Income

If you have considered long-term care insurance (LTCI) but are reluctant to purchase a product you feel you may not need, consider linked-benefit long-term care products. Linked-benefit products are life insurance policies that provide long-term care benefits and a potential death benefit for heirs but can also guarantee a return of premium if you change your mind. These products do require a large, single premium, but once you have paid this premium, no future rate increases are possible.

Here are some of the many benefits of a linked-benefit policy:

  • By repositioning an existing asset, you can leverage the asset for income tax-free long-term care benefits.
  • If long-term care is never needed, your beneficiary receives an income tax-free death benefit. 
  • You have control over the asset with a lifetime money-back guarantee of your premium.
  • Retirement assets are freed up for other uses. 
  • There is a residual death benefit if you use up the entire long-term care benefit.

For example: A married woman in good health may have decided against LTCI because, with $200,000 in CDs that she considers her emergency long-term care fund, she feels she has enough money to self-insure. We know, however, that $200,000 will pay for only a limited amount of long-term care expenses and that, if she needs care, she may have to invade principal or make up the shortfall with income. 

If she repositions $100,000 to purchase a linked-benefit policy, for instance, she could get these benefits:

  • A $155,000 death benefit (income tax-free) 
  • A $465,000 total long-term care fund (She has leveraged her $100,000 more than fourfold!) 
  • A $6,400 long-term care monthly benefit that would last a minimum of 72 months 
  • A $15,000 residual death benefit if she uses her entire long-term care fund

Incorporating a linked-benefit long-term care plan into your retirement plan can create an income stream to pay for long-term care expenses. In addition, this solution allows the rest of the portfolio to remain intact—protecting your family, assets, income, lifestyle, and legacy plans.

Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser.