Linked Life and Long Term Care Insurance. How does it work and what's the difference between a 7702b and 101g policy design?
Linked life and long-term care insurance is a type of insurance policy that combines long-term care coverage with an investment component, allowing policyholders to use their premiums to build cash value over time⁴. It is also known as hybrid long-term care insurance because it combines two different types of insurance policies into one⁴.
Linked life and long-term care insurance works by using either a life insurance policy or an annuity as the base for the long-term care benefits¹³⁴. If you need long-term care, you can access a portion of the death benefit or the annuity value to pay for your care expenses, tax-free¹⁴. If you don't need long-term care, you can leave the remaining death benefit or annuity value to your beneficiaries, also tax-free¹⁴. Some policies also offer a return-of-premium option, which allows you to cancel your policy and get back your premiums if you change your mind³⁴.
The difference between a 7702b and 101g policy design is based on the tax code sections that govern the treatment of long-term care benefits. A 7702b policy design follows the rules for qualified long-term care contracts, which are treated as accident and health insurance contracts⁷. A 101g policy design follows the rules for accelerated death benefits for chronic illness, which are treated as life insurance death benefits⁷.
Some of the main differences between a 7702b and 101g policy design are:
Eligibility criteria: A 7702b policy design requires that you need help with at least two activities of daily living (ADLs) or have a severe cognitive impairment to qualify for long-term care benefits⁷⁸. A 101g policy design requires that you have a chronic illness that is expected to last at least 90 days and that you are unable to perform at least two ADLs or require substantial supervision due to a severe cognitive impairment⁷.
Benefit amount: A 7702b policy design allows you to receive up to the full amount of your long-term care benefit, regardless of your actual expenses⁷⁸. A 101g policy design limits your benefit amount to the lesser of your actual expenses or the per diem amount set by the IRS (which was $400 in 2021)⁷.
Taxation: A 7702b policy design allows you to receive your long-term care benefits tax-free, as long as they do not exceed certain limits⁷⁸. A 101g policy design allows you to receive your benefits tax-free, as long as they do not exceed the greater of your actual expenses or the per diem amount set by the IRS⁷.
State partnership programs: A 7702b policy design may qualify for state partnership programs, which allow you to keep some of your assets if you exhaust your long-term care benefits and apply for Medicaid⁸. A 101g policy design does not qualify for state partnership programs⁸.
Premium deductibility: A 7702b policy design may allow you to deduct some or all of your premiums for income tax purposes, depending on your age and income⁸. A 101g policy design does not allow you to deduct your premiums for income tax purposes⁸.
If you are interested in linked life and long-term care insurance or learning more about it, you may want to contact an independent agent who can help you compare different policies and find the best one for your needs and budget.
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(2) Life Insurance With Long-Term Care - The Motley Fool. https://www.fool.com/the-ascent/insurance/life/life-insurance-long-term-care/.
(3) Ordering the Combo: Life Insurance and Long-Term Care - NerdWallet. https://www.nerdwallet.com/article/insurance/combine-life-insurance-long-term-care.
(4) Covering the costs of long-term care - Equitable. https://portal.equitable.com/appentry/EDoxRedirect?node_id=61772307.
(5) Comparing 7702B and 101(g) Linked Benefit Plans - AALTCI. https://www.aaltci.org/linked-benefit-warning/.
(6) How Hybrid Life Insurance Pays For Long-Term Care - Forbes. https://www.forbes.com/advisor/life-insurance/long-term-care-hybrid/.
(7) Covering the costs of long-term care: 7702B vs. 101(g) - Equitable. https://equitable.com/selling-life-insurance/learning/long-term-care/ltc-vs-chronic-illness-white-paper-7702B.
(8) Purchasing a Long-Term Care Rider: What to Know | Kiplinger. https://www.kiplinger.com/article/insurance/t036-c032-s014-purchasing-a-long-term-care-rider-what-to-know.html.