A growing concern with the aging population and their families is how they might be able to afford long-term care should they ever need it. It’s a justified worry as long-term care costs in the United States in 2021 were between $35,000 and $108,000. Of course, this depends on the length and type of care needed. However, with numbers like that, it becomes extremely important to think about how you would pay for these services. There are a few different ways that a life insurance policy can provide the necessary coverage needed to afford long-term care.
Long-Term Care Insurance Rider
Riders are add-ons used to customize your life insurance policy in order to make it work the best for you and your family’s needs. With a long-term care insurance rider, your death benefit may be accelerated to cover the costs associated with that type of care. You may use a portion or all of the benefit while you are alive, but this portion gets subtracted from what your beneficiary will receive. For example, if you had a $400,000 policy and only used 50% of the policy for your long-term care, your beneficiary will be left with the remaining $200,000.
There are various ways to receive this benefit. You can receive monthly payments or a lump sum of funds. And because it is a rider, it is just there for assurances. So, if you don’t end up needing the funds for long-term care, your beneficiary will receive the full death benefit when you pass.
Accelerated Death Benefits
An accelerated death benefit is a tax-free advance on your life insurance death benefit that you can use while still alive. This instance may come at an extra cost attached to your premium, but other times, it is included in your life insurance policy.
You may think, “Isn’t this the same as a long-term care insurance rider?” While it’s understandable why you would think that considering they are both ways that you can access your death benefit early, the difference is that accelerated death benefits (ADBs) are meant for a few different circumstances, whereas the rider is just for long-term care.
A few different circumstances in which you are able to receive a cash advance, according to the Alabama Department of Insurance, include:
- Terminal illness, with death expected within a specified period, usually six months to one year
- The occurrence of a specified catastrophic illness or the need for extraordinary medical intervention
- The need for long-term care due to the inability to perform a number of “activities of daily living”
- Permanent nursing home confinement
Similar to the long-term care insurance rider, the ADB payments you receive will eat away at the overall payout that your beneficiaries will receive.
Life Settlements
A lot of people have life insurance in place just in case they pass and need to pay off a mortgage or get their children through college and ensure they are taken care of. If all of that has already been taken care of (your kids are grown with their own families, and your house and funeral services are fully paid), then you may feel there is not much of a need for such a large life insurance policy. However, what might be more prudent is paying for long-term care services. This scenario is where your life insurance policy comes into play.
Life settlements allow you to sell your life insurance policy for cash. In exchange, the buyer agrees to pay for the remaining premiums, if needed, to keep the policy active, the buyer will receive the death benefit when you pass. How much you receive as a settlement depends on a variety of factors like your age, health, and policy terms and conditions. However, a large payment like this can ensure that your long-term care is paid for in advance to avoid extra worry.
It is important to really consider your ongoing life insurance needs before opting for a life settlement. If you have a true need for your life insurance policy, this should not be your first option, especially considering that it can be harder to obtain a new policy at an older age. Additionally, no life insurance policy means no death benefit for any beneficiaries. So, if your plan was to provide financial assistance to your family with the death benefit, a life settlement is not for you.
Life Insurance Questions?
We hope that this information on life insurance helping with long-term care costs is useful to you.
If you’d like to learn how we can help you plan your retirement, call Empower Brokerage at (888) 539-1633 to speak to one of our Life and Annuity experts or leave a comment down below.
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