Situation: Not that long ago, the only way to insure the risk of long-term care was through the purchase of a standalone long-term care insurance policy. While stand-alone long-term care products offered a variety of features allowing customization of a policy, many customers did not like the “use it or lose it” nature of the product.1
In response to customer concerns and changes in the tax law, insurers designed the “hybrid” or “linked benefit” products as alternative solutions. Linked-benefit products combine the benefits of a life insurance policy with that of a long-term care policy. This design allows the policyholder to accelerate death benefit to pay for qualifying long-term care expenses of the insured, but the death benefit component of the policy is paid to the beneficiary if the long-term care benefit is not used. Thus, this design overcomes the “use it or lose it” shortfall of the standalone products, as there is always some type of payout.
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