Linked benefit plans are life insurance contracts that have a long term care rider attached to them. The amount of the long term care benefit is specified at time of issue and does not increase over time. The long term care benefit is paid as a percentage of the face amount of the life insurance policy.

How does the plan work?

The client at time of application chooses how quickly they wish to receive the benefit in the event of a long term care claim. Most companies offer a 2% or 4% per month draw down method. For example, a plan from Prudential would pay 2% of the face amount each month for up to 50 months as a long term care benefit. In the event that the insured dies before the entire benefit is paid out, the remaining unused amount is paid as a life insurance benefit. For example, the insured is issued a $1,000,000 face amount contract age 50. Her contract has a 2% long term care rider. At the age of 75, she is certified to have a loss of two activities of daily living and starts receiving $20,000/month as a long term care benefit (.02 x 1000). She passes away at age 78 having used up 36 months of care. Her beneficiaries would receive $280,000 ($1,000,000 – $720,000).

How are the payments received by the insurance?

The method of payment for the long term care benefit is either indemnity or reimbursement. Under the indemnity contract, the money is paid directly to the insured and does not require any receipts be submitted to the insurance company. With a reimbursement contract, the insured has to submit proof of expenses incurred to the insurance company to receive payment. An indemnity payment method provides the client with the option to use the money for any expenses they may incur. With a reimbursement only approved long term care expenses will be paid by the insurance company.

Who are good prospects for this product?

Candidates for this product are anyone who is looking for coverage for potential long term care claims and a known death benefit. Coverage can be written on insured as young as age 21 and as old as 80 (depending on the carrier). It enables the insured to design a plan that meets their specific needs. The face amount, length of payment period and length of coverage period for the long term care (using either the 2% of 4% payout option) can all be tailored to the client’s specifications. One limitation of these contracts is that a cost of living rider is not available.