Long-term care is one of the most significant financial burdens facing many retirees. Assisted living, home health aides and nursing home stays can cost thousands of dollars per month, and traditional coverage often comes up short. Medicare does not cover most extended care services, and long-term care insurance can be expensive or out of reach for many seniors.
However, many people are unaware that they may already own an asset that can help pay for long-term care: their life insurance policy. Through a life insurance settlement, seniors can sell a policy they no longer need and use the proceeds to help cover the costs of ongoing care.
If you are concerned about how to afford assisted living or support a loved one through in-home care, understanding this option could significantly alter your approach. Keep reading to learn how to turn a dormant life insurance policy into real financial support without adding debt, draining savings or sacrificing your home.
THE LONG-TERM CARE CHALLENGE: CLIMBING COSTS AND LIMITED COVERAGE
The cost of elder care continues to rise. According to Genworth’s Cost of Care Survey, the annual median cost in the U.S. is:
- Assisted living: $64,200
- In-home health aide: $75,500
- Homemaker services: $68,600
- Nursing home (semi-private room): $104,000
- Nursing home (private room): $116,800
These figures represent averages, but many regions, such as the Northeast and West Coast, are even more expensive. Yet most Americans are unprepared. Many retirees rely on fixed incomes, and their savings may not stretch far enough to meet their needs.
Medicare covers limited services — often short-term rehabilitation, not extended care. Medicaid also requires spending down most of your assets to qualify. And if it is even in place, long-term care insurance may deny claims or restrict the use of funds.
WHAT IS A LIFE INSURANCE SETTLEMENT?
While traditional funding methods of funding long-term care needs often fall short, some retirees are turning to their life insurance policies as a potential source of support. That’s where life insurance settlements come in.
A life insurance settlement allows a policyholder to sell their existing life insurance policy to an institutional buyer. In exchange, they receive a lump sum cash payout, often significantly more than the policy’s surrender value.
To qualify for a life settlement, the seller must typically meet the following minimum criteria:
- Policyholder’s age: 65 or older with a change in health since the policy was issued
- Policy: Universal life, joint survivorship universal life, whole life or convertible term policy
- Policy’s face value: Usually $100,000 or more
- Policyholder’s health: Varies, but the policyholder’s life expectancy is most often 14 years or less
Once the sale is completed, the buyer becomes the new owner and beneficiary of the policy, continues to pay the premiums, and collects the death benefit later. This transaction happens through the life insurance secondary market, where a licensed broker helps connect the seller with interested buyers.
HOW A LIFE SETTLEMENT CAN HELP PAY FOR LONG-TERM CARE
There are several practical ways a life settlement can directly support long-term
care funding:
- Assisted living: Selling a life insurance policy you no longer need can provide immediate funds to help cover monthly assisted living costs without depleting other retirement assets.
- In-home care: Families can use the settlement proceeds to cover the costs of in-home aides, avoiding early Medicaid enrollment and allowing seniors to remain in their homes longer.
- Supporting parents: Adult children can use funds from a parent’s policy to help offset care costs, especially when insurance or savings fall short of meeting these expenses.
Unlike long-term care insurance, there are no spending restrictions on the proceeds from a life settlement. The cash can be used as needed, whether for caregiving, medical bills, home modifications or even personal support for the caregiver.
COMPARING FUNDING OPTIONS: WHERE A LIFE SETTLEMENT FITS IN
| Option | Pros | Cons |
|---|---|---|
| Life Settlement | Lump sum payout, no loan or debt | Loss of death benefit, tax implications |
| Reverse Mortgage | Stay in your home while accessing equity | Reduces home equity, and interest accrues |
| Medicaid | Covers most care eventually | Requires asset spend-down to qualify |
| LTC Insurance | Designed specifically for long-term care | Costly, may have benefit restrictions |
Understanding where life settlements stand among other long-term care funding options can help families make more informed financial decisions. A life insurance settlement can complement other strategies or be a standalone solution. It offers flexibility and does not add debt or require surrendering a home.
THINGS TO CONSIDER BEFORE SELLING A LIFE INSURANCE POLICY FOR CASH
While funding elder care with a life settlement is highly effective, it may not be the right fit for everyone. Consider these factors first:
- Loss of the death benefit: Your heirs will no longer receive a payout when you pass away.
- Taxes: Depending on your policy and how much it has grown in value, you may owe taxes on the settlement proceeds.
- Health and policy fit: Not all policies or health profiles qualify for a life settlement.
- Broker selection: Work with a licensed settlement broker who provides access to multiple bids and clearly explains all fees.
- Professional advice: Consult a financial advisor to determine how the settlement fits your long-term care funding strategy.
Taking the time to review the policy and obtain multiple quotes ensures a fair offer and greater transparency in the life settlement process.
MAKING LONG-TERM CARE MORE MANAGEABLE
Planning for long-term care is one of the most emotionally and financially complex parts of aging. Families are often caught off guard, scrambling to cover sudden nursing home expenses or navigating government programs they never anticipated using.
A life settlement offers a lesser-known but potentially life-changing solution. For seniors with an existing life insurance policy they no longer need, this option can offer both flexibility and financial relief without the red tape of other programs.
If you are wondering how to afford assisted living or in-home care, your life insurance policy may be the key. A life insurance settlement for care needs could help you unlock funds to cover costs without sacrificing your home or draining savings.
Life Settlement Advisors has over 25 years of industry experience in the life settlement industry. We specialize in helping seniors and their families unlock the hidden value in their life insurance policies. Contact us today to schedule a no-obligation consultation. Learn how much your policy might be worth and whether it could help fund long-term care for you or a loved one.
