How Life Insurance Can Help Pay for Long-Term Care

Long-term care is a reality for many older adults, with nearly 70% of people over 65 needing some form of assistance, according to the Urban Institute and the U.S. Department of Health and Human Services. The costs, however, can be overwhelming. Whether it’s in-home care, assisted living, or a nursing facility, long-term care expenses can quickly deplete savings.

Many seniors and their families explore long-term care insurance, but not everyone has a policy in place. 

As seen in the AARP, there are good strategies on how life insurance can help you pay for long-term care. For those who bought life insurance when their kids were young, now they can repurpose it: 

“That doesn’t mean that a life insurance policy should be your go-to source for covering the cost of long-term care needs. But it might be an option if you don’t have another way to pay for support when a disability, health issue or cognitive decline leaves you unable to manage everyday activities on your own.”

If you don’t have dedicated long-term care insurance, or if your policy doesn’t cover enough, you might be able to use your life insurance to help pay for care. Here’s how.

Ways to Use Life Insurance for Long-Term Care

1. Life Settlements: Sell Your Policy for Immediate Funds

If you no longer need or can’t afford your life insurance policy, a life settlement allows you to sell it to a third party in exchange for a lump-sum payment. This can provide significantly more cash than surrendering the policy back to the insurance company.

• Typically available to policyholders aged 65+ with policies valued at $100,000 or more
• Can be used to fund assisted living, home care, or nursing home costs, or any expenses the seller wishes
• A smart option for those who no longer need their coverage or struggle with expensive premiums

Companies like Lighthouse Life specialize in making life settlements fast and easy, helping retirees maximize their financial options. If you’re specifically considering selling a Universal Life Insurance Policy, our dedicated guide—Selling Your Universal Life Insurance Policy for Cash —walks you through the process step by step. You can also use our life settlement calculator to quickly estimate your policy’s value and explore your options.

2. Viatical Settlements: Financial Relief for Those Facing Terminal Illness

A viatical settlement is similar to a life settlement but is reserved for individuals with a terminal illness. If you or a loved one has been diagnosed with a serious medical condition, selling a life insurance policy in a viatical settlement can provide tax-free funds for immediate care (if you have any tax-related questions, be sure to speak to a financial professional). In most cases, viatical settlements:

• Are available to those with a life expectancy of fewer than two years.
• Provide a higher payout than traditional life settlements.
• Have proceeds which are tax-free when used for medical or long-term care expenses.

3. Long-Term Care Riders: Accessing Benefits Early

Some life insurance policies include a long-term care (LTC) rider, which allows policyholders to withdraw a portion of their death benefit while still alive to pay for care.

• Often added at the time of purchasing life insurance.
• Fund use is limited to things like home care, nursing homes, or assisted living.
• Reduces the final death benefit paid to beneficiaries.

According to Progressive, “Adding a long-term care rider can provide financial flexibility and peace of mind as you plan for potential healthcare needs“. This option ensures that policyholders don’t have to wait until their families receive the death benefit to access the funds they need for care.

Other Options to Consider

Converting Term Life Insurance to a Permanent Policy

Generally, it is difficult for term life policies to qualify for a life settlement since they last only for a specified period of time (the policy term), as opposed to permanent policies like universal life or whole life, which (so long as the required premiums are paid on time) last for the insured’s entire life. However, some policies allow you to convert term life insurance into a permanent policy, which could then be sold in a life settlement to provide funds for long-term care.

• Check your policy’s conversion options before it expires.
• Conversion deadlines typically range from age 65 to 75, or for a set number of years after the policy is issued, whichever comes first.
• Once converted, the policyholder can explore life settlement opportunities.

Using a Policy’s Cash Value

If you have a whole life or universal life insurance policy, you might be able to withdraw or borrow against the policy’s cash value to cover long-term care costs.

• Withdrawals may reduce the death benefit but provide tax-free funds.
• Policy loans must be repaid with interest to prevent policy lapse.
• Best for those who do not want to sell their policy entirely.

Trusted Industry Advice

Long-term care insurance is one of the best ways to prepare for future care costs, but many people either do not have a policy or find that their coverage falls short. In such cases, alternative funding solutions, such as life settlements or hybrid policies, can provide much-needed financial relief. This aligns with our approach at Lighthouse Life, where we help seniors make the best financial decisions for their long-term care needs.

How to Decide the Best Option for You

When considering how to use your life insurance policy for long-term care, keep these factors in mind:

• Health Status: Are you eligible for a life or viatical settlement based on your current condition?.
• Policy Features: Does your policy include a long-term care rider, hybrid policy, or cash value component?.
• Financial Needs: Will selling your policy or accessing funds provide sufficient resources for care?.
• Tax Considerations: Some proceeds from settlements may be taxable. Consulting a financial professional can help you navigate this.
• Impact on Beneficiaries: Selling or modifying a policy may affect the amount passed on to your loved ones.

If you’re exploring life settlements as an option, Lighthouse Life can help. We specialize in guiding seniors through the process, making it fast, simple, and transparent so you can focus on enjoying retirement. Get a free policy review today and see how much your policy is worth!

Maximizing Your Financial Options for Long-Term Care

Planning for long-term care can be overwhelming, but your life insurance policy can serve as a valuable financial resource. Exploring options like life settlements, viatical settlements, long-term care riders, hybrid policies, or leveraging cash value can provide much-needed funds for your care needs while ensuring financial stability in retirement.

If you’re considering using your life insurance to help cover long-term care expenses, Lighthouse Life is here to help. Our team specializes in guiding seniors through our simple, transparent process. Contact us today for a free consultation to explore your options and maximize your financial potential.