Can I Use Life Insurance to Pay for Long-Term Care?

  • Last updated Oct 8, 2018 at 8:28PM | Published on Oct 15, 2015
  • Richard Reich
what is the accelerated death benefit

The answer is yes, but only under certain circumstances. If you have life insurance, there are several ways in which you can use your policy to pay for long-term care. To learn more about how to use life insurance to pay for long-term care, keep reading and see which option works best for you.

Life/Long-Term Care Insurance

Insurance companies have just recently started offering combination life/long-term care insurance policies. Many people struggle with the idea of buying long-term care insurance because the chances of using those benefits are uncertain. However, combination policies give the holder the option of using their benefits either as a death benefit or to pay for long-term care. The policy will usually stipulate what percentage of the death benefit can be used for long-term care expenses. Jump over to the American Association for Long-Term Care Insurance for more information on combination insurance policies.

Accelerated Death Benefits

An Accelerated Death Benefit or ADB allows you, when terminally ill, to access a portion of the death benefit of your life insurance policy while you’re still alive. You can use that extra income from your ADB on your life insurance to pay for long-term care or medical bills. Your insurance provider may charge you a premium to receive an ADB, although many companies will allow you to add the rider to your policy at no additional cost. The amount you receive from your ADB will be subtracted from your death benefit, leaving less money for your heirs.

In many cases, you will receive monthly benefits to help with your long-term care expenses. Usually the overall ADB payout is limited to a specific percentage of your death benefit. Additionally, the extra income from your ADB might prevent you from qualifying for government benefits. Go to the American Council of Life Insurers for an FAQ on ADBs and how they will affect your life insurance policy.

Viatical Settlements

Viatical settlements are reserved for those that are terminally ill. If someone is diagnosed with a terminal illness with less than two years to live, an investor will offer to buy their life insurance policy at a reduced value. The previous owner of the policy can use this money to pay for treatment and living expenses. The new owner of the policy will receive the death benefit once the previous owner has died. However, the investor runs the risk of the previous owner outliving their new life expectancy, which means that they might have to wait years to cash in on the life insurance policy. Investors will usually only invest in cases with the worst medical conditions to make sure that they will get a timely return on their investment. To find out more information on how to use viatical settlements on life insurance to pay for long-term care, head over to Paying for Senior Care’s guidelines on viatical settlements.

Life Settlement

A life settlement is very similar to a viatical settlement except that life settlements are reserved for seniors with deteriorating health conditions rather than the terminally ill. A senior with a life insurance policy may have several years left to live, but his premiums are getting more expensive and he can’t access the money from his policy. In order to use his life insurance to pay for long-term care and living expenses, he might apply for a life settlement. In that case, an investor will offer to pay him for his policy at a reduced value. The senior can use that money to live out the remainder of his years. While, the investor can cash in on the policy once the beneficiary is deceased, making a profit on the policy. For more information, take a look at the Life Insurance Settlement Association’s advice for policyholders looking to obtain a life settlement.

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