Long-term care planning is an essential consideration as you age. Beyond understanding your care preferences, you must plan to finance your care. While long-term care insurance is becoming more popular, many seniors may view life insurance as a better option. This post will cover the basics of using life insurance to pay for long-term care.
What You Need to Know About Using Life Insurance to Pay for Long-Term Care
Life insurance may offer several options for funding long-term care expenses. The right option will depend on the individual circumstances and policy type. Read on to learn about ways to finance long-term care using life insurance.
Get a Hybrid Policy
A combination or hybrid policy can be one of the best options. This option gives you a life insurance policy with a long-term care rider. Typically, this coverage would offer monthly payments to cover long-term care costs. The payments would be a percentage of the total death benefit. Long-term care payments would also subtract from the total death benefits. That means the policy would pay out less when the individual dies.
Use Accelerated Death Benefits
Accelerated Death Benefits (ADBs) allow policyholders to receive a portion of their life insurance death benefit while still alive. You can access these benefits if you require long-term care or have a terminal illness. However, not all policies have ABDs, and the terms may vary. One advantage is that ABDs are often tax-free. Insurers also cap ABDs at a percentage of the total death benefit.
Surrender the Policy
Surrendering a life insurance policy involves giving up the death benefit in exchange for the policy’s cash value. While it may provide immediate funds to support long-term care, it could have significant tax implications. Additionally, early surrender may incur penalties, and the proceeds can affect Medicaid eligibility. Seniors must understand that the surrender value of a policy might be lower than the cash value.
Take a Life Settlement
A life settlement allows policyholders to sell their life insurance policy to a third party for its current market value. It is another way to access immediate cash for long-term care expenses. While it offers financial flexibility, the proceeds may be taxable. It is also likely that the life settlement will leave little to no death benefit for the policyholder’s heirs. Seniors should also remember that the settlement will not pay out the policy’s full value.
While life insurance can offer several ways to pay for long-term care, seniors must consider the implications. Beyond reducing the death benefit, your decisions could impact your taxes and Medicaid eligibility. That’s why seniors should seek expert guidance for long-term care planning.
Are you or a senior loved one in need of legal services? Click here to contact Scott Law Offices. Our elder law experts can help with everything from wills and trusts to long-term care planning. Reach out now to learn more!
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