2022 Linked Benefit Long-Term Care Price Index Can Benefit Buyers

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Contributor, Benzinga
April 5, 2022

An increasing number of individuals are purchasing policies that offer a combination of long-term care and life insurance benefits.  These policies are typically referred to as linked benefit, combo or hybrid long-term care. 

The majority of plans purchased in 2021 were a combination of life insurance and long-term care benefits.  Combo products combining annuity features with long-term care benefits have attracted less interest, likely a result of the historic low interest rate environment.

According to the American Association for Long-Term Care Insurance (AALTCI) just over 70,000 qualified linked-benefit policies were purchased in 2021.  The reference to “qualified” reflects that plans meet provisions of Internal Revenue Code 7702B.  Over twice as many plans that have similar-looking benefits are classified as “chronic illness riders” and meet IRC Code 101(g).

For those seeking the most options for potential long-term care needs, experts advise looking at plans meeting the 7702B provisions.   A number of leading insurance companies including Nationwide, Lincoln Financial, OneAmerica and Pacific Life offer plans.

While policies are all designed to offer a combination of benefits should the policyholder require long-term care, a new study finds significant differences in both cost and maximum available benefits.

Costs For Men At Ages 55 and 65

The first Linked Benefit Price and Benefit Comparison conducted by the American Association for Long-Term Care Insurance (AALTCI) examined costs and benefits for men and women at ages 55 and 65.  The analysis studied costs and potential benefits for those purchasing coverage at age 55. An initial benefit of $4,000-per-month growing at 3% compounded annually was selected.  This would yield a potential long-term care benefit of $9,700-per-month at age 85 and $11,250 starting at age 90.

A male in good health could pay as little as $5,235 annually for coverage if purchasing coverage at age 55 according to the industry analysis.  Waiting a decade to apply meant the lowest available annual cost would be $7,223.

Women Pay More For Identical Linked Benefit Coverage

Similar to traditional long-term care insurance, women pay more for equal amounts of long-term care insurance protection.   About two-thirds of all long-term care insurance benefits are paid out as a result of care needs by female policyholders.

The analysis of linked benefit long-term care policies found the lowest premium for a female policyholder at age 55 is $7,138.  At age 65, the lowest was $10,301 annually.

Maximum Long-Term Care Benefit Payouts Can Vary

Linked benefit long-term care policies are designed to ultimately pay a life insurance or death benefit.  However, if a need for qualifying long-term care occurs, the policy will provide benefits by depleting the potential life insurance benefit.

 In simple terms, the policies exhaust the life insurance benefit over a period ranging from between 24 to 36 months.  Following that, a provision may extend long-term care benefits for a predetermined maximum amount of time.  The report notes that one insurance company does permit what’s referred to as an unlimited, or lifetime, long-term care payout period.

The policy price and benefit analysis revealed the importance of comparing both price and potential available benefits.  For both men and women purchasing at age 55, the maximum available long-term care benefit starting at age 85 ranged from $482,400 to $560,796.

Death Benefits Showed Greatest Range Of Potential Benefits

Most consumers purchasing a linked-benefit LTC policy admit they are more interested in the availability of long-term care benefits than the future death benefits.  Perhaps insurers are aware of this because the analysis found a significantly large spread in life insurance benefits.

For a male purchasing coverage at age 65, the lowest death benefit at age 100 was $100,000.   The maximum amount was $384,523.   For women, the death benefit spread between lowest and highest was slightly less pronounced.

Tips To Review A Linked-Benefit Long-Term Care Proposal

If you are considering linked benefit long-term care protection, there are two things you should request and review.  It’s best to review both before buying coverage.

The first is an illustration of benefits, sometimes called an outline of coverage.  This will clearly show all values.  Especially important are those that are guaranteed including the maximum monthly and total long-term care benefit.  Also look at the net death benefit and cash value on surrender.

Equally, if not more important, is a specimen policy.  Your specific policy provisions are spelled out in a lengthy contract.  Often contracts are 50 or more pages of single-spaced definitions.  You won’t receive one after you apply, are generally approved and have made payment. 

However, you can request a specimen policy that will outline everything you need to know.  In particular, look to see which section of the Internal Revenue Code the plan falls under.  Your advisor or insurance agent can provide one via email.

Considering the potential spread in costs and benefits, comparing linked benefit policies can be advisable.  The American Association for Long-Term Care Insurance can connect you with a linked-benefit long-term care specialist.  They can be a great resource for learning more and comparing coverage.

In addition to running illustrations, specialists will know which insurers offer discounts to couples.  Ask about policies that are paid up when you turn age 65 or after a set number of years.  A specialist will know such nuances as which policies can accept payments from an individual retirement account.  Their expertise comes free, more than well worth your time.

About Jesse Slome

Medicare Expert – Director Long Term Care Insurance Association, Medicare Supplement Insurance & Critical Illness Insurance Association