Paying for Care in Dementia: Life Insurance Policies
- Team Writer
- 1 hour ago
- 3 min read
Paying for care needs can be expensive, especially as we age, and planning is essential. The National Institute on Aging has put together a resource page for paying for long-term care needs. According to the NIA, “some people believe that their current health or disability insurance will pay for their long-term care needs, but most of these insurance policies include limited, if any, long-term care benefits. In most cases, people must find other means of paying for long-term care. They may rely on a variety of payment sources, including personal funds, federal and state government programs, and private financing options”.
When discussing private financing options, the National Institute on Aging mentions: ”There are several private payment options, including long-term care insurance, reverse mortgages, certain life insurance policies, annuities, and trusts.” That’s right – a life insurance policy can be an option for funding long-term care needs.
How Can Life Insurance Policies Be Used to Finance Care?
First, a life insurance policy may have “critical illness” or “accelerated death” benefits in the policy. A call to the insurance company or your insurance agent will tell you if your policy has either of these benefits, if you qualify, and how to access them.
Second, a life insurance policy can be sold. Most people do not know this is an option, so here is a deeper dive into the details. A life insurance policy is an asset that you own. Policies are sold for a lump sum of money through what is called a life insurance settlement. Life insurance settlements are legal (since 1911) and highly regulated by the Departments of Insurance in each state, offering a safe alternative for clients.
Policies can be worth tens of thousands or hundreds of thousands of dollars.
The money clients receive from selling their policy can be used for anything. And any type of policy can be sold, including term policies.
A client recently sold her $1,000,000 term life insurance policy to pay for future care needs. The client does not need care now, but knows she will in the future. She sold the policy for $480,000, giving her the financial freedom she needed to quit her job and focus on her health.
To find out how much a client’s policy is worth can take 60 – 90 days. A client’s medical records and premium projections from the insurance company need to be obtained. Life insurance settlement brokers will obtain this information on behalf of the client. Then buyers will evaluate this information and make an offer.
Clients are not obligated to accept any offers from buyers, so it is a free, no-obligation appraisal of their policy. Once a client accepts an offer, it can take another 4 – 6 weeks to complete the sale process, so this is a longer-term solution and not a short-term source of funding.
As mentioned above, the market and process are highly regulated to protect clients. The purchasers of policies are usually institutional investors, and each buyer must be approved by the Department of Insurance in the state where the client lives. HIPAA protections, strong financials, and policy trackability must be demonstrated to protect clients.
Selling a life insurance policy may not be right for everyone, and a client should consult with their advisors before considering a life insurance settlement. In the right circumstances, a life insurance settlement can help clients secure the funding they need to live comfortably for the rest of their lives.
If you would like more details regarding all of the options for paying for long-term care, here is the link to the National Institute on Aging website referenced in this blog: Paying for Long-Term Care | National Institute on Aging
Author: Lisa Rehburg
Lisa Rehburg is President of Rehburg Life Settlements, a life settlement broker serving clients in all 50 states. Her fiduciary duty to her clients is to market their policies to obtain the highest possible amount of money for them.
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