Whether your plan is to age in place or move into a senior living facility, it’s likely that you or a loved one will need some form of long-term care. In fact, more than 50% of women and 39% of men over age 65 will require long-term care, the American Association for Long-Term Care Insurance reports.
Paying for long-term care can be a significant financial burden, and standard health insurance and Medicare may not cover every aspect of senior care. Some people, however, may turn to an overlooked asset: a life insurance policy.
[READ: 10 Steps to Plan Ahead for Long-Term Care]
What Are The Costs of Long-Term Care?
Long-term care costs may be higher than you expect, especially if your care needs become more significant or if you live in a high-cost-of-living area.
| Type of Senior Care | Median Monthly Cost | Median Annual Cost |
| Assisted living | $6,200 | $74,400 |
| Memory care | $7,645 | $91,740 |
| Nursing home (semi-private room) | $9,581 | $114,975 |
| Nursing home (private room) | $10,798 | $129,576 |
[READ: The Cost of Waiting to Talk About Senior Care]
Leveraging Life Insurance as a Living Benefit for Long-Term Care
If the idea of yet another expense keeps you awake at night, there’s some potentially good news: More life insurance products are evolving to cover the cost of long-term care.
“For many families, leveraging a life insurance policy to cover long-term care offers peace of mind, financial flexibility and the ability to protect other assets earmarked for retirement or heirs,” says Chad Druvenga, founder and CEO of CBS Brokerage in Shakopee, Minnesota.
Decades ago, life insurance products didn’t have the same flexibility as current plans. Using life insurance to pay for long-term care can also be a tax-efficient way to fund care costs without creating new debt, says Tom West, founder of the Lifecare Affordability Plan, a financial planning process and asset management solution-focused business in Tysons Corner, Virginia.
[READ: Senior Living Advisors: What They Do, How Much They Cost and How to Choose the Best Consultant]
What Are the 4 Ways to Use Life Insurance for Care?
Here are four ways you can use a life insurance policy to pay for long-term care.
— Purchase a hybrid life insurance policy
— Add a long-term care rider to your existing coverage
— Use a life insurance settlement
— Take out a loan from the policy
1. Purchase a hybrid life insurance policy
With a hybrid policy, you have a plan or annuity that also gives long-term care benefits if or when you need them. If you don’t use the long-term care option, your heirs still receive the full benefits when you die.
— Best for: People who are okay with paying more so that their benefits will be used, whether for long-term care or as a death benefit, rather than a traditional use-it-or-lose-it type of insurance policy.
— Cautions: Hybrid policies can be more expensive than traditional policies. You may have to pay accelerated premiums in about 10 annual installments instead of over a lifetime.
2. Add a long-term care rider to your existing coverage
A rider is additional coverage added to an existing life insurance policy. In this case, the rider would be set up so that some of the death benefit goes toward long-term care.
There are different ways that the insurance plan may pay for long-term care:
— Reimbursement structure. This type will reimburse you for long-term care costs up to a monthly limit defined in the policy, often 1%, 2% or 4% of the death benefit, Druvenga says.
— Indemnity structure. This type pays a monthly fixed benefit up to the policy’s limits. You can use the benefits as you wish.
Some policies require medical underwriting, which is a review of your health. This includes looking at your health history, family medical history and medications that you use. Because of this review, not everyone will qualify for these types of policies, Druvenga says.
— Best for: “Younger buyers in good health may benefit from policies with built-in long-term care riders, since underwriting is easier and premiums are generally more favorable,” Druvenga notes.
— Cautions: Adding a rider/riders can increase the cost of your policy. If long-term care is used, it can reduce the death benefit.
3. Use a life insurance settlement
By selling your life insurance policy for cash back to a third party, you get cash when you need it most, such as for long-term care expenses, West says. The amount you get will be less than the full death benefit. It’s helpful to use a life settlement broker to guide you through the process.
The buyer of your plan then pays any monthly premiums on the policy and collects any death benefits in the future. You also can surrender, or cancel, your policy with the life insurance company for quick money. With this option, you don’t receive a death benefit, and the life insurance company will charge fees. It’s usually a better bet to try and sell your policy, a process known as a life or viatical settlement, depending on your health.
— Best for: People who are strapped for money and need cash quickly.
— Cautions: You lose your life insurance coverage, and you may owe taxes. Consult with a financial advisor and a tax advisor to make sure this option is right for you.
4. Take out a loan from your policy
Another option is to take out a loan from your life insurance policy. This is an option if you have a whole life or universal life policy. It’s not an option if you have a term life insurance policy, though some term life insurance policies can be converted to whole life insurance.
If you can take out a loan from your policy, then it can potentially provide the money needed to pay for long-term care. As you’re borrowing against your own policy, you can use the money how you wish, and you won’t be taxed on it.
— Best for: People with immediate cash needs for long-term care or another purpose.
— Cautions: You’ll reduce your death benefit if you don’t pay back the loan.
Tips When Reviewing Life Insurance to Pay for Long-Term Care
— Ask about different options. In addition to long-term care riders on life insurance plans, there are also chronic illness riders. A chronic illness rider provides cash if needed to care for a chronic illness, but it also has certain stipulations, such as reducing the death benefit. Having a policy with a long-term care or chronic illness rider can be useful, but be clear on how it works, West advises.
— Find out about timing. Explore the timing of when long-term care benefits are triggered and how benefits are paid. In most cases, benefits are triggered when someone has dementia or when they can’t do two or more activities of daily living, such as bathing, dressing and eating.
— Look for flexibility. For instance, is long-term care provided in a nursing home or via home care? Be sure you know how the benefits can change in different care settings. West recommends that you look at policies that cover all types of long-term care for maximum flexibility.
— Find out about death benefit amounts. Using long-term care will affect the death benefit amount. For instance, if you used $30,000 of the policy toward long-term care, then the death benefit to your heirs will be lower by that amount or another amount depending on the policy’s terms.
— Keep tabs. Periodically review any existing life insurance policy that you have. Perhaps you have an existing life insurance policy that you got when you first had children, and now those children are in college or beyond. This is a perfect time to look at your policy. Many older policies don’t have long-term care features, but some may allow for other options like loans or settlements. You also may have the option to add on riders to make the policy better suited to your current coverage goals.
— Work with an expert. An independent insurance advisor, financial advisor or elder law attorney can help determine the right life insurance policy for you.
As confusing as the options may sound, finding the right life insurance policy with long-term care coverage can help many.
“Life insurance is no longer just about dying, it’s about living well without draining your life savings,” West says. “The best time to plan is always before you need care, not when you are in crisis mode.”
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Life Insurance for Long-Term Care: 4 Ways to Pay for Care originally appeared on usnews.com
Update 04/15/26: This story was previously published at an earlier date and has been updated with new information.
