Many people are unaware of the fact that life insurance can be used to pay for assisted living. Nowadays, a high number of insurance companies make available life insurance and long-term care policies, Accelerated Death Benefits (ADB), life settlements, and viatical settlements to help people finance a senior living arrangement. Here is how you can use these options to pay for long-term care services.
Life and Long-Term Care Insurance
If you’re disinclined to buy long-term care insurance because you fear that your investment had no purpose if you don’t use it, some insurers are ready to offer you the best possible solution: a combination of long-term care and whole life insurance. The great thing about this insurance option is that it ensures that policy benefits will be paid with no worries.
This first option has the most risk. A viatical settlement also converts life insurance policies into cash; however, it’s a lot different from a life settlement. While a life settlement can be used for a variety of purposes and by all seniors, regardless of their health condition, this settlement typically involves insured people who are terminally or chronically ill. Giving you the chance to pay for the care you need until you die, a viatical settlement represents a viable option only if your life expectancy is less than two years. The company that buys your life insurance policy will pay you a percentage of the policy’s face value according to your life expectancy. Since the company continues to pay your monthly premium, it becomes the beneficiary of your policy, which means that it will receive the full benefit of your policy when you die. Unlike life settlements, viatical settlement transactions don’t imply taxes.
Accelerated Death Benefit (ADB)
Accelerated Death Benefit is a feature included in certain life insurance policies, allowing you to ask for an advance on death benefits while you’re still alive. Depending on the type of insurance you have, you may ask for ADB in circumstances such as when you need long-term care or when you've been diagnosed with a life-threatening condition, or when you’re terminally ill. While some insurance companies approve 50 percent of the death benefit as accelerated benefit payment, others allow you to use the entire amount. An ADB policy that covers long-term care usually makes available two percent of the policy’s face value for care in assisted living facilities and one percent for home care.
A very important aspect you should bear in mind is that the life insurance policies including ADB require little or no health screenings, a fact that turns them into the best insurance alternatives for people suffering from health conditions that make them ineligible for other insurance options. The amount you receive as ADB is subtracted from the total amount paid to your beneficiaries when you die.
If you’ve discovered that your life insurance policy no longer meets your needs, you may consider selling it to a third party, a procedure referred to as a life settlement. Although most insurance companies allow policyholders to "surrender" their life insurance policies, selling your policy to another party will bring you a lot more money than offering it to your insurer. Before moving forward with a life settlement, it’s important to know that selling your life insurance may leave little or no benefit to your heirs. Further, since any excess cash above the cash surrender value of life insurance policies is considered income, all life settlement transactions are subject to income taxes.
As you can see, there are a few things you can do to transform your life insurance policy into a long-term care plan. Now, if you’re interested in learning more about how to do this, you should approach a reputable financial advisor specializing in the financial problems of senior citizens.