Many seniors over the age of 65 will eventually require some type of long term care. The need for long term care is usually due to a severe or chronic illness that requires both medical treatment and help with daily living. Paying for long term care can become a significant financial burden for an elder and his or her family – from $40,000 up to $100,000 a year depending on the type of care that is needed.
One way long term care can be financed is by converting a life insurance policy into a life settlement, viatical settlement or Long Term Care Benefit Plan.
Using Life Insurance to Pay for Long Term Care
Most insurance companies will buy back a policy if the policyholder decides it is no longer needed or can no longer afford the premiums. However, the amount of money the insurance company will pay (cash surrender value) is only a small percentage of the policy’s actual worth.
Another option is selling the life insurance policy to a third party. This is often the best way to recover the most amount of money from the policy and any premiums that have been paid to date.
Selling a Life Insurance Policy to a Third Party
When a life insurance policy is sold to a third party, it is called a life settlement. Until recently, life settlements were primarily for high net worth individuals with a death benefit above $1 million. In addition to age restrictions, only certain types of policies were accepted.
The paperwork needed for a life settlement includes 5 years of medical records and can take as long as 6 months to complete. Life settlement lump sum payments average around 15% of the death benefit. The money received in a life settlement is also taxable.
During the peak of the AIDs crisis in the 1980s, a new type of life settlement, called viatical settlements, become popular. At the time, viatical settlements were primarily for individuals with a terminal illness and life expectancy of 2 years or less. Today you will find some life settlement companies offering viaticals to individuals with chronic health conditions or a terminal illness with a life expectancy of up to five years. Although the federal government does not tax the money, some states may still require tax payments.
Converting a Policy to a Long Term Care Benefit Plan
The best way to pay for long term care is with a third type of life settlement, called a Long Term Care Benefit Plan. Not only is the settlement tax-free, there are no age minimums or health restrictions.
Several different types of polices can be converted to a Long Term Care Benefit Plan, including Term Life, Whole Life, Universal Life and Group. Policies can have a face value as low as $50,000. The average payout for a Long Term Care Benefit Plan is 4 to 5 times greater than any other type of life settlement – usually around 30% to 60% of the policy’s face value. The settlement process can also be completed in as little as 30 days with a minimal amount of paperwork. Money from the settlement is deposited into an irrevocable Benefit Account which is professionally managed. Medical and personal care expenses are paid from this account.
If you or a family member need long term care, including home care, assisted living, nursing home care or hospice care, converting an-force life insurance policy to a Long Term Care Benefit Plan can reduce financial worries and ensure the highest quality of care possible.
Elder Care Funding helps individuals and families find solutions to long term care financing. Complete the form below to find out if you are eligible for a Long Term Care Benefit Plan, or give us a call at 844-814-6511.