Commonly Asked Questions

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1 FOR INCOME Lincoln Long-Term Care SM Fixed nnuity and the Optional Inflation Protection Benefit Rider is subject to firm and state availability. Products and features, including benefits, exclusions, limitations, terms, and definitions, may vary by state. Check your selling agreement or contact the nnuity Sales Desk for more information. General Information Q1 Lincoln Long-Term Care SM Fixed nnuity is currently available in 32 states (as of November 12, 2012). Which states are approved and what are some of the state product variations? Lincoln Long-Term Care SM Fixed nnuity and Optional Inflation Protection Benefit Rider Commonly sked Questions State variations may impact the following product features and provisions (this list may not be all inclusive): Market Value djustment (MV) ssisted Living Coverage Inflation Protection Premium Requirements LTC Benefit Duration: - 2 Yrs cceleration Benefit + 4 Yrs Extension Benefit (2+4) - 3 Yrs cceleration Benefit + 3 Yrs Extension Benefit (3+3) LTC Coverage Effective Date (when benefits are available; a deductible period also applies) State labama, laska, rizona, rkansas, Delaware, DC, Georgia, Iowa, Kentucky, Louisiana, Maine, Maryland, Michigan, Montana, Nebraska, New Mexico, North Carolina, North Dakota, Oklahoma, Rhode Island, South Carolina, West Virginia, Wyoming (23 states) South Dakota (Max. Premium is $500K) Kansas, Illinois (November 12, 2012) Wisconsin (November 12, 2012) (Min. Premium 2+4: $50K; 3+3: $65K) Mississippi Minnesota, Missouri and Oregon Indiana Features / Comments Product features, most states: MV Provision - The Market Value djustment (MV) provision is included (Contract form ). ssisted Living Coverage is at 50%. There is no Inflation Protection available. Both 2+4 and 3+3 LTC Benefit Durations are available LTC Coverage Effective Date: one year ssisted Living Coverage is at 100% (Extension Benefit Charge Percentage is adjusted to account for this increased benefit). Other product features are the same as shown above. LTC Coverage Effective Date: 90 days cceleration Benefit referred to as ccumulation LTC Benefit Other product features are the same as shown above. The 3+3 LTC Benefit Duration is not available. Other product features are the same as shown for most states (above). There is no MV Provision (Contract form ). Other product features are the same as shown for most states (above). ssisted Living Coverage is at 100% (Extension Benefit Charge Percentage is adjusted to account for this increased benefit). Inflation Protection is available with the 3+3 LTC Benefit Duration; it is required with the 3+3 design. Inflation Protection is not available with the 2+4 LTC Benefit Duration. Both LTC Benefit Durations are available (Note: the 3+3 LTC Benefit Duration is only offered with Inflation Protection). Lincoln Long-Term Care SM fixed annuity (contract form number or state variation) is issued by The Lincoln National Life Insurance Company, Fort Wayne, IN, and distributed by Lincoln Financial Distributors, Inc., a broker/dealer. The Optional Inflation Protection Benefit Rider (E-240) is subject to state availability. The Lincoln National Life Insurance Company does not solicit business in the state of New York, nor is it authorized to do so. Contractual obligations are backed by the claims-paying ability of The Lincoln National Life Insurance Company. Lincoln Financial Group is the marketing name for Lincoln National Corporation and its affiliates. ffiliates are separately responsible for their own financial and contractual obligations. LCN /15/2012 For Broker Use Only Not for use with the General Public Page 1 of 7

2 Q2 Q3 Q4 Q5 re there special licensing and appointment requirements for selling long-term care (LTC) products? Yes. Lincoln Long-Term Care SM Fixed nnuity can only be sold by representatives who are licensed and appointed to sell long-term care insurance and annuities. Is there any additional training required when selling LTC products? Yes. Certain states required additional training for representatives selling LTC products. Lincoln has put together a chart containing the state-specific training requirements. The Lincoln Life and nnuity Long-Term Care (LTC) Hybrid Products State Insurance Licensing and Training chart is available from producer websites (Conducting Business tab) or by calling the nnuity Sales Desk. If required, a copy of the training certificate identifying the state for which the course was taken, must be received by Producer Solutions before authority to sell Life and nnuity/long-term Care product(s) can be granted. Please send certificates of completion via , fax or mail to: Contracting@LFG.com Fax: (603) Mail: Lincoln Financial Group, ttention: Distribution Gateway, P.O. Box 515, Concord, NH What are the issue requirements for Lincoln Long-Term Care SM Fixed nnuity? Single Covered Life (Joint Owners are allowed); non-qualified contracts only. Issues ages: Minimum age of 45 through a maximum age of 74 (age as of the last birthday). (Single) Premium Requirements: - Minimum premium required: $50,000 (state variations apply). - Maximum Premium: $400,000 for 2+ 4 benefit $600,000 for 3+ 3 benefit (subject to state availability; state variations apply) The maximum premium limit is per covered life, including previous Lincoln LTC contracts involving the same individual. ny combination of applications and existing contracts on the same covered life where the sum total of the premium submitted and in-force exceeds the amounts shown above requires Home Office approval. If someone is declined for Lincoln MoneyGuard Reserve Plus during the interview process, are they disqualified from purchasing a Lincoln annuity with LTC benefits? Yes. If a client is declined for MoneyGuard they are not eligible for an annuity with LTC benefits either. The first statement on the Long-Term Care Eligibility Statements form (N10681) asks if the prospective client has been turned down for any other LTC coverage: Q6 How does Lincoln verify the prospective client s answers on the Long-Term Care Eligibility Statements form (N10681)? There are several checks and balances that occur during the application and claim process: Lincoln conducts a prescription drug screening on each applicant. This process will turn up any medications used to treat medical conditions which can result in the client being denied LTC coverage. The client must sign and return the Contract mendment; the Contract mendment repeats the Eligibility Statements and asks the client to confirm them once more after the contract is issued. lso when a claim is submitted, there are checks in place to make sure that the client did not have a preexisting condition. Lincoln can decline the claim if the client s health was misrepresented during the application process. LCN /15/2012 For Broker Use Only Not for use with the General Public Page 2 of 7

3 Q7 How does the availability of the Optional Inflation Protection Benefit (IPB) Rider impact the state approval process? Many states require an inflation option or for the product to be approved in the domicile state before approving a long-term care product. Indiana, Lincoln s domicile state, requires an inflation option. Lincoln previously filed the Lincoln Long-Term Care SM fixed annuity in as many states as possible without having the inflation option available. In order to proceed with the rest of the states, Lincoln needed to include an inflation option. Q8 In Indiana, if the client wants the 3+3 LTC Benefit Duration, the client must elect either the 3% or 5% inflation protection benefit - Why? Indiana would not approve the 3+3 LTC Benefit Duration without the inflation protection. Will other states require that also? Possibly. Lincoln has begun the filing process with the remaining states. Receiving LTC Benefits Q9 When is the best time to start taking LTC benefit payments? In general, the maximum amount available for LTC benefit payments is available beginning in year six (after the 5 th contract anniversary). However, regardless of when the client begins receiving LTC benefit payments, the total overall amount of benefits would be available, but over an extended duration due to smaller payments available. Q10 Can the amount of LTC benefit payments increase? There are two ways the available LTC Benefits can increase: LTC Growth Benefit - ny net earnings in the contract will be available as LTC Growth Benefit. Inflation Protection Benefit (Indiana only) - The available LTC benefit will increase with the election of the Optional Inflation Protection Benefit rider. If inflation protection is elected, the Total LTC Benefit will continue to increase the longer the client waits to begin taking LTC Benefit payments. Q11 What if a contract is issued in one state but then the client enters a facility in a different state? For example, the client purchases a contract while residing in Indiana, but enters into a facility in Hawaii. Does the client get the full 100% coverage for assisted living facility as per Indiana s rules? Yes. The coverage is provided based on the contract the client purchased. Q12 When on claim (receiving LTC benefit payments), LTC benefits are generally not taxable under IRC Section 104(a)(3), but what kind of 1099 is actually sent out? Lincoln will send the owner a 1099-LTC. Optional Inflation Protection Benefit Features Q13 How do the long-term care (LTC) benefits increase if the Optional Inflation Protection Benefit rider is elected? The Optional Inflation Protection Benefit (IPB) rider will automatically increase long-term care (LTC) benefits annually, with either 3% or 5% inflation protection available (compounded annually). The annual increases start at the first rider (contract) anniversary and continue with each subsequent anniversary throughout the life of the contract, including the claims phase. Q14 Does the 3% or 5% inflation protection benefit also increase the accumulation value? No. The inflation protection only impacts the amount available as LTC benefits. LCN /15/2012 For Broker Use Only Not for use with the General Public Page 3 of 7

4 Q15 When does the inflation protection of 3% or 5% start increasing the LTC benefit amount? The inflation protection benefit starts increasing the available LTC benefit on the first contract anniversary, and will continue to increase the benefit each subsequent anniversary throughout the life of the contract. The LTC benefit will be increased by either 3% or 5%, compounded annually. Several competitor products offer inflation protection that increases benefits at a future date or only during the claims phase of the contract. Q16 Once I start claims, does the inflation protection stop? No. Unlike several competitor products, Lincoln s inflation protection continues to increase the LTC benefit amount even when the contract is in claim status. Q17 What if I start taking benefits in the early years of the contract - will I lose the inflation protection? No. Since the IPB Rider starts increasing LTC benefits on the first contract anniversary, the available LTC benefit will reflect the inflation protection, even if the LTC benefit payment is taken after the first contract year and before the end of the 5 th contract year. Taking LTC benefits earlier will extend the length of time over which benefits can be paid. The Total LTC Benefit amount will always be available for payout, but the duration for receiving payments may be longer. In other words, if you start taking payments prior to the 5 th contract anniversary, it will take you longer to withdraw the full amount of the LTC Benefits. Impact of the Optional Inflation Protection Benefit (IPB) on other Product Features Q18 What impact will the Optional Inflation Protection Benefit (IPB Rider) have on the LTC Growth Benefit? The impact on the LTC Growth Benefit is twofold: The cost of the IPB Rider will be deducted from the ccumulation Value, thereby reducing the amount available for the LTC Growth Benefit. If the IPB rider is elected, the LTC Growth Benefit is the ccumulation Value minus the cceleration Benefit increased by the inflation protection. Therefore, earnings in the contract will have to exceed the total amount of fees plus the inflation benefit to be able to accumulate any LTC Growth Benefit. Since the LTC Growth Benefit can be used for purposes other than LTC benefits (such as annuitization or death benefit) this may be an important consideration to electing the IPB Rider. Q19 What impact will the IPB Rider have on the Optional Nonforfeiture Benefit? Since the purpose of the Nonforfeiture Benefit is to recapture the costs associated with the contract, the Nonforfeiture Benefit will include the costs of the IPB Rider, if elected. Since the Nonforfeiture Benefit is higher, the cost for the Optional Nonforfeiture Benefit is higher as well. Refer to the LTC Insurance Benefit Charge Disclosure (Form N10204) for more information. Q20 Does the IPB Rider impact the accumulation value at all? Yes. The cost for the rider will be deducted quarterly from the accumulation value. Costs Q21 How is the cost for the LTC coverage deducted? Fees will be deducted quarterly and in arrears; the first deduction will occur on the business day on the threemonth contract anniversary (or next business day following) and will be deducted every three months thereafter. ll deductions for the fees stop once the accumulation value is reduced to zero. Costs are based on age and benefit duration, not gender or health. Benefits are based on the type of service received, and the timing of the first benefit payment. LCN /15/2012 For Broker Use Only Not for use with the General Public Page 4 of 7

5 Q22 I noticed that the Extension Benefit fee for the LTC base benefits is higher in some states (Kansas) and in states where the IPB Rider is available (Indiana). Why? For most states, assisted living is payable at 50% of the maximum available benefit. Some states may have defined nursing home care to include assisted living; therefore, assisted living is payable at 100% of the maximum benefit (this is the case for Kansas). In states where the product has not yet been filed, it was decided to increase the level of benefit available for assisted living facilities. The higher Extension Benefit fee supports this richer benefit. Q23 Can the IPB Rider charge percentage change? Yes, after the surrender charge period ends. The IPB Rider fee is guaranteed not to change for the first seven years of the contract (the surrender charge period). fter the surrender charge period ends, the Rider charge percentage may change. The cceleration IPB Charge is guaranteed not to exceed 4%. Q24 Will the charge for the total LTC benefits change? How? Not initially: The charge percentage for both the LTC Base benefits and inflation protection is determined by age at issue. The age used to determine the charge percentage will not change over the life of the contract. During the first seven years of the contract (the surrender charge period), the fees will not change unless the client has entered the claims-phase and has reduced the cceleration Benefit amount to zero. For the following hypothetical example, let s assume that a client, age 60, has elected the 3+3 LTC Benefit Duration and has elected the 3% Optional Inflation Protection Benefit rider. The client did not elect any optional non-forfeiture coverage. The client did not take any withdrawals. LTC Base Benefits: cceleration Benefit Charge = Currently 0%. Cost for Extension Benefit = Extension Benefit Charge Percentage X Extension Benefit. The Extension Benefit amount will not change unless the client has exhausted the cceleration Benefit amount, at which time the cost for the Extension benefit will no longer be deducted. The Extension Benefit Charge Percentage is guaranteed not to change during the first seven years (the surrender charge period). fter the surrender charge period, Lincoln reserves the right to change the percentages on a class basis in a nondiscriminatory manner. The annual Extension Benefit Charge Percentage is 0.52% and is assessed quarterly (divide by four). Inflation Protection Benefit: cceleration Inflation Benefit Percent = 0.62% and is assessed quarterly (divided by four). Cost for cceleration Inflation Benefit = cceleration Inflation Benefit Percent X Initial cceleration Benefit. The cost will remain the same (during the surrender charge period) until the client has exhausted the cceleration Benefit amount. Extension Inflation Benefit Percent = 0.26% and will be assessed quarterly (divided by four). Cost for Extension Inflation Benefit = Extension Inflation Benefit Percent X Initial Extension Benefit. The Extension Inflation Benefit cost will remain the same (during the surrender charge period) until accumulation value is reduced to zero. Refer to the Fixed nnuity Long-Term Care Insurance Benefit Charge Disclosure (Form N10204) for current fees. LCN /15/2012 For Broker Use Only Not for use with the General Public Page 5 of 7

6 Q25 How will the cost for LTC benefits, including the IPB Rider, impact the accumulation value if the credited rate is: Lower than the total LTC cost? Higher than the total LTC cost? Lower: If the credited rate is lower than the total LTC cost, the accumulation value will decrease by the difference. For example, if the credited rate is 1.35% and the total LTC cost is 1.40%* (annually) the accumulation value will decrease by.05% per year. There will be no LTC Growth Benefit. However, keep in mind that in this example, LTC benefits will increase by 3% per year, for the net cost of the.05%. Higher: If the credited rate is higher than the total LTC cost, the net earnings will increase the accumulation value. The difference between the accumulation value and cceleration Benefit (increased by the inflation protection) will be available as the LTC Growth Benefit. For example, if the credited rate is 1.60% and the total LTC cost is 1.40%* (annually) the accumulation value will increase by.20% per year. Since the net earnings did not exceed the 3% inflation amount, there will be no additional LTC Growth Benefit. * 1.40% is for a client age 60, 3+3 LTC Benefit Duration with 3% IPB Rider. Q26 It seems the cost for the 5% IPB rider is pretty steep. Will the crediting rates support this expense? In the current interest rate environment, it is possible that the annual fees will exceed the amount of the interest credited in a contract year. For example: If the credited rate is 1.35% and the Total LTC Benefits Cost is 2.54% (ge 60: 0.52% LTC Base Benefits and 2.02% for the 5% inflation protection) the accumulation value will decrease by approximately 1.19% each year. This assumes the crediting rate stays the same each year. However, keep in mind that the cost is supporting the guaranteed growth of the LTC benefits; a guaranteed increase of 5% in the amount of benefits available for LTC coverage. Illustration Questions Q27 Regarding illustrations for the Optional Inflation Protection Benefit (currently available in Indiana only): The value for Total LTC Benefits is shown as higher in the early years, decreasing to the lowest point after the 5 th contract year, and then increasing for the rest of the illustration. I thought the maximum monthly benefit was available after the 5 th contract year - why is the Total Benefit for the end of the 5 th contract year lower than in earlier years? Remember, the maximum monthly LTC benefit is available after the 5 th contract year. This means you can receive the highest monthly LTC benefit available, over the shortest period of time. If LTC benefit payments are taken prior to the 6 th contract year, the monthly benefit will be smaller than if you had waited the full 5 years, and the benefit will be paid out over a longer period of time. With the IPB rider, inflation protection continues to increase (compounded annually) available LTC Benefits for the life of the contract. The extended duration reflects the impact of the annual increases. In this example: ge 60, $100,000 premium, 3+3 LTC Benefit Duration 3% Optional Inflation Protection Benefit The Total LTC Benefit shown at the end of the 2 nd contract year of $251,413 represents the overall LTC benefits paid out over 14 years. The 3% inflation protection is compounded annually over this time. If the client waits until year 6 (end of the 5 th contract year), the available monthly [annual] LTC benefit is higher, and is paid out over 6 years. The 3% inflation protection is compounded annually over this time. Values are hypothetical and are included to demonstrate the benefits of this rider. Refer to a complete product and rider illustration for information. LCN /15/2012 For Broker Use Only Not for use with the General Public Page 6 of 7

7 Q28 What is the Guaranteed Minimum Cash Value (GMCV) and how do we solve for that number? Effective for contracts issued June 1, 2012 (in states where approved) the calculation is as follows: 90% x Premium x (1 + GMIR)^(# days from issue to valuation date/365) **Please note that the values on the illustration are annual therefore a representative will not be able to back into the values on the illustration since the cost for the LTC benefits are deducted quarterly. ** Q29 How does the Market Value djustment (MV) impact the GMCV? How do we calculate it with someone who wants to crunch numbers? The GMCV is the floor (or cap) for the MV; the GMCV reflects the maximum possible MV. There is a marketing piece on LFD.com that covers the MV calculation. Q30 Why does that GMCV show N/ after the surrender charge period ends? fter the Surrender Charge period ends, the MV does not apply. The GMCV is no longer applicable. Q31 The hypos make it look like you can't take LTC benefits until the end of the 2 nd year, why is that? LTC Benefits are available after the first contract anniversary, subject to the deductible period. Benefits can be phased-in after a one year wait; shown as available from year two on the illustration. Note: Some states that are pending approval require that benefits are available during the first contract year. Products and features, including benefits, exclusions, limitations, terms, and definitions, may vary by state. Lincoln Long-Term Care SM fixed annuity (contract form number or state variation) is issued by The Lincoln National Life Insurance Company, Fort Wayne, IN, and distributed by Lincoln Financial Distributors, Inc., a broker/dealer. The Optional Inflation Protection Benefit Rider (E-240) is subject to state availability. The Lincoln National Life Insurance Company does not solicit business in the state of New York, nor is it authorized to do so. Contractual obligations are backed by the claims-paying ability of The Lincoln National Life Insurance Company. Contract may be referred to as certificate in certain states (certificate may not be available in all states). The certificate is a group annuity certificate issued under a group annuity contract issued by The Lincoln National Life Insurance Company to a group annuity trust. Not a deposit. Not FDIC-Insured. Not insured by any federal government agency. Not guaranteed by any bank or savings association. May go down in value. Limitations and exclusions may apply. Limitations and exclusions on eligibility of long-term care benefits include: receiving treatment for nervous or mental disorders (excluding lzheimer s Disease or dementia), receiving treatment for alcoholism or drug addiction (unless the drug addiction is a result of medication taken in doses as prescribed by a physician), receiving treatment arising out of an attempt at suicide or an intentionally self-inflicted injury, or receiving treatment provided in a Veteran s dministration or other government facility. nyone receiving Qualified Long-Term Care Services for which benefits are available under Medicare or other governmental programs (except Medicaid), workers compensation laws, employer s liability laws, occupational disease laws, or motor vehicle no-fault laws will also not be eligible. dditionally, this includes Qualified Long-Term Care Services provided by members of the Covered Life s Immediate Family, whether paid or unpaid. Lincoln Financial Group is the marketing name for Lincoln National Corporation and its affiliates. ffiliates are separately responsible for their own financial and contractual obligations The Lincoln National Life Insurance Company, Fort Wayne, IN LCN /15/2012 For Broker Use Only Not for use with the General Public Page 7 of 7