Using Insurance for Senior Living: A Look at the Options

Using long-term care insurance is one obvious source of funds to pay for senior living expenses, but there are other ways to use insurance policies that many seniors may not even know about. Before giving up on the dream of moving to a senior living community take a look at all the options provided by insurance for senior living.

Options for using insurance for senior living expenses

Option #1: Long-term care insurance

For those who prefer to plan ahead, long-term care insurance can be an excellent source of funds for providing care and assistance when the time comes.

There are two basic types of long-term care insurance: stand-alone policies and hybrid policies that are combined with a life insurance policy. What is essential to understand about both is that they only pay when the policyholder can prove (generally through a physician) that they require daily assistance either in the home or in a senior living community.

Long-term care insurance policies also have a broad range of factors that dictate when, how much and how long payments are made, so when purchasing long-term care insurance for senior living it is important to work with an insurance representative that can help you choose the right policy and payment parameters. Learn how long-term care insurance works in the article, “What Is Long-Term Care Insurance?

Option #2: Life insurance surrender

For those who purchased a whole life or universal life insurance policy early on, by the time retirement arrives that policy has likely accrued substantial cash value. This cash can be accessed by simply surrendering the policy. For whole life, that value equals the guaranteed cash value plus any accumulated dividend value. With universal life, it is the cash value at the time of surrender, minus any surrender charges.

While this option may seem like a great idea, there are a few drawbacks to consider. According to the article, “What is the cash surrender value of life insurance?”, for starters, once the policy is surrendered, it is gone forever along with the protection it offered. In addition, there may be surrender fees that are deducted from the cash value, and taxes may be owed on the cash from the surrender if the amount is greater than the sum of the payments made over the life of the policy. To best assess whether surrender of life insurance for senior living is the best move, consult with a qualified agent or financial advisor.

Discover more possibilities in our Family Guide to Paying for Senior Living.

Option #3: Life insurance settlement

Another way to use insurance for senior living is through a life settlement of an existing insurance policy with accrued value. A life settlement is the sale of a life insurance policy to a third party for a single cash payment. That third party then becomes the beneficiary, makes payments on the policy and ultimately receives the death benefit when the original policy holder dies. This payout is generally larger than that from surrender and is a good way to use insurance to pay for senior living. While taxable, these taxes are assessed based on the amount of the settlement minus the amount of premiums paid in. Get the facts about life settlements in the article, “Life Settlement.”

Option #4: Life insurance loans

For those who prefer to retain their life insurance policy, another option is to take out a loan against the policy. This allows the policy holder to use money from life insurance for senior living and gives them the choice to repay the loan or not. For those who no longer need the life insurance policy to care for a family, this option can be a quick and easy way to secure tax-free funds at often lower interest rates than banks. Again, however, there are cons to be aware of including, lower death benefit if the loan is not repaid, accruing interest that may compound and increase the loan balance, and the chance that the policy will lapse if the loan amount exceeds the cash value. Find out more in the article, “Are life insurance loans a bad idea?

Option #5: Cash withdrawal

Since life insurance (except term life) accrues a cash value over time, those who want to keep the policy can withdraw cash without having to repay it. On the downside, however, is that cash withdrawal will reduce the amount of the death benefit, may have a charge or fee, and the amount withdrawn may also be taxed. More on cash withdrawal is available in the article, “When and How to Cash Out Life Insurance.”

Using insurance for senior living is one way to secure funds so check out more possibilities in our “Family Guide to Paying for Senior Living.” Contact us today to learn more about Thrive Senior Living and schedule a tour.

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