Many people are hesitant to buy long-term care insurance because they assume that they will never need it. Most prefer getting life insurance instead because of practicality.
What’s interesting is that, and not many people are aware of it, long-term care can be paid using your life insurance. However, there are terms as to how this works and may not apply with all types of life insurance policies or insurance companies.
Here are ways your life insurance can pay for long-term care:
- Viatical settlement or Life settlement
Viatical settlements are plans that let you sell your life insurance policy to a third party. However, it requires you to be in a state of terminal illness.
Life settlements are plans that let you sell your life insurance policy for its current value, regardless of the reason. Although, only men age 70 and older, and women age 74 and older are offered this option.
- Accelerated Death Benefits (ADBs)
Some life insurance policies have a feature included which lets you receive a tax-free advance while you are still alive. This type of life insurance may require you to pay an extra premium to make this feature available on you r policy. Some insurers may or may not charge you extra.
In order for you to be able to make a cash advance on your life insurance policy, you need to meet certain requirements:
- Being diagnosed of a life-threatening condition such as cancer or AIDS.
- Being terminally ill.
- Will be in need of long-term care for an indefinite period of time.
- Getting confined to a nursing home permanently and unable to perform any Activities of Daily Living (ADL).
There is no fixed amount of how much you can receive from these types of life insurance policies. However, most ADB payments are capped at half of the death benefit but some policies let you use the whole amount of the death benefit, depending on the insurer and policy.
- Combination (Life/Long-term Care) Products
Some companies introduced a type of life insurance which came with long-term care insurance. It aims to help consumers see how having long-term care insurance can be a good investment.
These types of insurance policies are new and not all insurance companies may immediately have this type of life insurance combination package.
Using your life insurance to pay for long-term care is a useful option if you decide to get life insurance instead of long-term care insurance.
Although this feature seems convenient, there are some problems that can be encountered such as:
- Decreased death benefit for loved ones.
- Advanced benefits may not meet the rates of long-term care costs and may become insufficient.
The point of getting life insurance is to provide for our loved ones after we pass on. However, with proper evaluation, if it is foreseen that there is a good chance of needing long-term care in the future, it would be wiser to get long-term care insurance instead.