Use Your Life Insurance: Alternative to Long Term Care Insurance

Some people over 60 decide to “self-insure” their lives by giving up their life insurance policy. But let’s assume that you still have life insurance. There are ways to use the money in these policies to pay for your long-term care insurance costs.

Check Out Your Cash Value

If you have a whole-life insurance or universal life policy, you probably have accumulated cash value insurance in it. You can pull this money out of the policy, either by canceling it outright or by taking a loan against it. If you cancel the policy, however, you may find you are uninsurable if you want to sign up for another one. And if you take a loan against the value, you’ll reduce the benefits that your beneficiaries receive.

You’re spending money you’ve put away for another purpose. For the kids, you’re sparing them the inconvenience of paying for you now by spending the money they anticipated receiving after your death.

Tap into Living Benefits or Accelerated Death Benefits

Your insurance policy may include a provision for living benefits or accelerated death benefits. These insurance benefits allow you to begin receiving life insurance payments while you are still alive, assuming that you meet the eligibility standards, which typically include having a year or less to live as well as confinement to a nursing home. This option is not automatic. You have to select it when you take your policy, although some insurers have provided accelerated death benefits as a no-cost enhancement. If you claim these benefits, however, you may not be able to use Medicaid requirements benefits.

Consider Viatical Settlements

In this case, you essentially sell your life insurance policy to a company, which then becomes the beneficiary of the policy. In return, the company sends you a lump sum payment while you are living, and receives the insurance proceeds when you die. Do your homework very carefully if you are considering this option. Few states regulate these viatical settlement firms, and you need to be sure that the firm doesn’t disappear with your irrevocable insurance trust be- fore it pays you what it promises.

These funding sources are complex variations on the life insurance your grandparents and great-grandparents bought. Grandpa paid the premiums and named the beneficiaries; and when he died, the company paid the heirs. The kids were sad that he was gone, but they appreciated the financial boost he provided.

Great-grandpa and Grandpa, however, did not typically live until the age of 85. Medical advances did not prolong their last years beyond their ability to stay independent and enjoy them. Great-grandpa and Grandpa did not need the long-term care insurance that you may be anticipating. Grandpa might have borrowed against his life insurance, however, or simply cashed it in. You’re considering the same option. If you opt for this funding source, your forebears would understand. It’s the kids who will miss the money they expected, even as they appreciate your ability to care independently for yourself if you need care.