When it comes to paying for senior living, there are obvious options (e.g. investments, savings, selling a home) and not so obvious options (e.g. U.S. Department of Veteran Affairs’ Aid and Attendance and public programs). When you’re planning for senior living expenses, make sure you don’t overlook insurance for senior living including long-term care insurance and life insurance.
Understanding LTC insurance
Often the easiest option to pay for senior living expenses, LTC insurance typically covers custodial care costs such as help with daily activities (e.g. dressing, bathing and mobility). Unfortunately, LTC insurance for senior living does not cover LTC in a medical facility.
If you purchased LTC insurance years ago, you’re set. If you didn’t, and retirement is on the horizon, it isn’t too late to purchase it. According to AARP, LTC insurance premiums are cheaper at a younger age, but shopping for a policy between 60 and 65 for yourself or age 55 for you and your spouse may offer the best combination of monthly affordability and fewer total dollars spent. Premiums do increase with age and health status. Before you purchase a LTC insurance, read Forbes’ Seven Questions To Ask About Your Long-term Care Insurance Policy.
Understanding life insurance for senior living
If you purchased life insurance, that policy can convert into insurance for senior living expenses. There are several options for converting life insurance for senior living including:
Life settlements
As the policyholder, you can sell your policy like a car or real estate. This is a completely legal transaction because the policy is considered your property. Typically, policies are sold for less than the death benefit but more than the cash surrender value, which is usually defined in the policy and based on the age of the policy. When you sell the policy the purchaser becomes the beneficiary, and you remain on the policy for the purchaser to receive the benefit upon your death. Generally, the one-time payment received in a life settlement is more than the surrender value but less than the death benefit and it is often tax free. Find out more about this insurance for senior living from from Forbes’ Life Settlements: A Hidden Source of Cash for Seniors.
Policy Loans
Permanent life insurance policies usually allow for loans against the policy’s value, but they aren’t the same as a bank loan. One difference is you’re not required to repay the loan; however, interest will continue accruing and adding to the loan amount and likely decreasing the the death benefit. The loan is also tax free while you’re alive and the policy is active, but interest rates may or may not be better than a bank. Is a life insurance loan right for you? Learn more about the pro’s and con’s of borrowing against your life insurance policy from RetireGuide.
Cash withdrawals
This option of using insurance for senior living is tax free, unless the amount exceeds the accrued value. It will likely decrease the death benefit. Since each policy is different, be sure to consult a licensed life insurance agent before making a withdrawal.
Life/LTC insurance
Also known as hybrid policies, this insurance for senior living combines life and LTC insurance in one policy. These are fairly new on the market but make the most of life insurance, so you don’t have to worry about LTC insurance going to waste if you never use it. Learn more from Kiplinger to determine if hybrid LTC insurance is right for you.
Using insurance for senior living can make retirement less stressful, and as highlighted here, there are several options. When deciding the best option for you, speak with your financial advisor and/or insurance agent. You’ll be happy you did!
