Elder Care Summary

Eldercare

Long-term care is expensive. The median annual cost in 2019 for assisted living services was $48,612, according to Genworth’s Cost of Care survey. A private room in a nursing home was more than double that. These high costs prompt many people to purchase long-term care insurance.

However, even if you don’t have long-term care insurance, you can still use your or a loved one’s current life insurance policy to help pay for long-term care. “If seniors don’t have a long-term care plan in place, the cash in your life insurance policy is a great place to start,” says Sam Price, an independent life insurance broker and owner of Assurance Financial Solutions.

4 ways seniors can use life insurance to pay for long-term care

Before you figure out whether your life insurance can help pay for long-term care, you need to understand what kind of policy you own. Here’s a quick overview.

• Hybrid life insurance has long-term care benefits packaged into the premium. Along with the life insurance death benefit, hybrid policies can also include long-term care insurance coverage or living benefits for cancer, strokes, or illnesses not covered by long-term care insurance

• Term life insurance accumulates no cash value. The policyholder has a choice to renew or end coverage when the term expires

• Whole life insurance has a death benefit but also contains a savings component. Part of the premiums go toward savings so you can accumulate cash value

• Universal life insurance also builds cash value but offers a more flexible way to build savings. Premiums fluctuate depending on your needs

Now let’s look at some options to free up money, depending on your type of policy.

1. Sell your policy and create a long-term care benefit plan

With a life settlement, you sell your life insurance policy to a third party for market value and use the proceeds to fund a long-term care benefit plan. Any type of life insurance — permanent with cash value, group insurance offered through an employer, even term life — can be used. However, most companies specializing in these transactions require a minimum of $50,000 in a death benefit.

2. Surrender the life insurance policy for cash value

When you “surrender” a life insurance policy to the insurance provider, you’re giving up ownership and the death benefit. If the policy has accumulated cash, the insurance company writes you a check for the full amount of cash value. In many cases, you must pay taxes on that amount — but not always.

3. Take a loan from cash accumulation

You won’t have to pay taxes on cash received from your life insurance if you take a loan from the policy’s cash value. You can’t take it all, or the policy will lapse. However, you can usually take most of the cash value in a loan that you pay back to yourself with interest.

4. Use cash value to fund a new policy for life insurance with long-term care

If you have time to plan and want to avoid paying taxes on funds received from your current life insurance policy’s cash value, you may be better off doing what’s known as a 1035 exchange. This conversion allows you to exchange one insurance policy’s cash value into a new policy without paying taxes on the money.

Thank you for reading and have a great day!