Life Insurance & LTC

You can use your life insurance policy to help pay for long-term care services through the following options:

Accelerated Death Benefits
Life settlements
Viatical settlements

Accelerated Death Benefits (ADB)

An Accelerated Death Benefit is a feature included in some life insurance policies that allows you to receive a tax-free advance on your life insurance death benefit while you are still alive. Sometimes you must pay an extra premium to add this feature to your life insurance policy. Sometimes the insurance company includes it in the policy for little or no cost.

There are different types of Accelerated Death Benefits, each of which serves a different purpose. Depending on the type of policy you have, you may be able to receive a cash advance on your life insurance policy’s death benefit if:

You are terminally ill
You have a life-threatening diagnosis, such as AIDS
You need long-term care services for an extended amount of time
You are permanently confined to a nursing home and incapable of performing Activities of Daily Living, such as bathing or dressing

The amount of money you receive from these types of policies varies, but typically the accelerated benefit payment amount is capped at 50 percent of the death benefit. Some policies, however, allow you to use the full amount of the death benefit.

For Accelerated Death Benefit policies that cover long-term care services, the monthly benefit you can use for nursing home care is typically equal to two percent of the life insurance policy’s face value. The amount available for home care (if it is included in the policy) is typically half that amount. For example, if your life insurance policy’s face value is $200,000, then the monthly payout available to you for care in a nursing home would be $4,000, but only $2,000 for home care. Some policies may pay the same monthly amount for care, regardless of where you receive the care.

When you receive payments from an Accelerated Death Benefit policy while you are alive, the amount you receive is subtracted from the amount that will be paid to your beneficiaries when you die.

Things to think about:

If your life insurance policy includes an Accelerated Death Benefit feature, you may be able to use your life insurance policy to help cover long-term care services. Depending on the policy amount, there may be little or no health screenings required. So if you have a health condition that might exclude you from long-term care insurance eligibility, you can still obtain a long-term care insurance policy through the Accelerated Death Benefit feature on a life insurance policy.
Accelerated Death Benefit policy payouts for long-term care services are often more limited than the benefits you could receive from a typical long-term care insurance policy.
The face value of your life insurance policy may not be enough to allow Accelerated Death Benefit payments that are enough to cover your long-term care services needs. The benefit payments may be too low and the duration may be too short to cover your long-term care services expenses.
Accelerated Death Benefit riders on life insurance policies may not offer inflation protection. If the policy does not include inflation protection, the Accelerated Death Benefit payment may not be sufficient to cover your future long-term care service costs.
If you want to leave an inheritance, you should consider whether using your life insurance death benefit to pay for long-term care services is the right option. If you use the Accelerated Death Benefit feature for long-term care services, there may be little or no death benefit remaining for your survivors.
Using the Accelerated Death Benefit option may affect your eligibility for Medicaid. Check with your state Medicaid agency for more information.

Life settlements

Life settlements allow you to sell your life insurance policy for its present value to raise cash for any reason. This option is usually only available to women age 74 and older and to men age 70 and older. You may choose to use the proceeds to pay for long-term care services.

Things to think about:

If you sell your life insurance policy, there may be little or no death benefit left for your heirs when you die.
The process does not require any health screens; you may be in good or poor health.
The proceeds of the sale may be taxed.

Viatical Settlements

Viatical settlements allow you to sell your life insurance policy to a third party and use the money you receive to pay for care. A viatical settlement is like a life settlement, but it is only possible if you are terminally ill. During the settlement process, a viatical company pays you a percentage of the death benefit on your life insurance policy which is based on your life expectancy. The viatical company then owns the policy and is its beneficiary. The viatical company also takes over payment of premiums on the policy. As a result, you get money to pay for care, and the viatical company receives the full death benefit after you die.

Unlike the life settlement, money you receive from a viatical settlement is tax-free, if you have a life expectancy of two years or less or are chronically ill, and the viatical company is licensed in the states in which it does business.

Things to think about:

You can only use the viatical settlement if you are terminally ill and have a life expectancy of two years or less.
If you use the viatical settlement option, you do not have to satisfy the health requirements for long-term care insurance.
If you use the viatical settlement option, your life insurance policy will not pay a death benefit to your heirs.
Viatical companies approve less than 50 percent of applicants.

The amount that you receive in cash from a viatical settlement is a percent of the death benefit on your life insurance policy. The chart below lists guidelines from the National Association of Insurance Commissioners (NAIC), for how that percent varies based on your life expectancy.

NAIC Guidelines for Viatical Payments

Life Expectancy	Benefit (%)
1–6 months	80
6–12 months	70
12–18 months	65
18–24 months	60
Over 24 months	50