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Using Insurance for Senior Living – A Look at the Options

Using insurance for senior living is one of many options – including personal assets and selling a home – to help pay for senior living expenses. However, how to use insurance for senior living expenses is not well understood. Whether you do or don’t have long-term care insurance, you may be able to use insurance for senior living expenses.

A look at LTC insurance

Many people purchase LTC insurance for a possible future need. LTC insurance typically covers custodial care (e.g. services commonly provided in assisted living or memory care) rather than medical care. LTC insurance for senior living is a great asset when chosen carefully with the following factors in mind:

  • Limits (i.e. maximums) – may be expressed as a dollar amount or number of years
  • Benefit coverage – care services that are covered
  • Benefit triggers – the requirements that need to be met to receive payments
  • Elimination period’s length – the time after a benefit trigger occurs but before you start receiving payments

When choosing an LTC insurance policy, you should consult with a financial professional as well as a reputable insurance representative who specializes in LTC insurance for senior living. For a rundown of the current possibilities, check out the 5 Best Long-Term Care Insurance Companies, from, and companies that are approved to sell LTC insurance in Maryland.

Life insurance options

Many life insurance policies accumulate funds that can be converted for senior living. Those include:

  • Hybrid policies – Although fairly new, hybrid life insurance/LTC policies are one option that’s becoming popular. With LTC insurance  perceived as a use-it-or-lose-it proposition, insurers have created an insurance policy that pays for LTC and provides a death benefit. Learn more from Forbes’ How Hybrid Life Insurance Pays for Long-Term Care.
  • Life settlements – If you purchased a life insurance policy to protect your family but no longer need it for that purpose – maybe because the nest is now empty – a life settlement may be a great way to use life insurance for senior living expenses. A life settlement is the sale of a life insurance policy to a third party who becomes the policy beneficiary and assumes the payments. 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. When the original policy owner dies, the purchaser receives the death benefit. Though not always legally binding, life settlements were legitimized in a case that went to the U.S. Supreme Court in 1911 and established that life insurance policies are property and can be sold at will by the owner. For more about life settlements and top companies, read Investopedia’s Best Life Settlement Companies
  • Take a loan — If you have a whole life policy that accrues cash value, you may be able to take a loan against that amount for anything, including senior living expenses. When you take a loan from the life insurance for senior living expenses, the loan is tax-free while while you’re alive, and the interest rate may be favorable, depending on the policy. Additionally, it is not mandatory to repay the loan; however, it will accrue interest, which if unpaid is compounded and added to the loan. Learn the ins and outs from Forbes’ Why You Should Be Careful With Life Insurance Policy Loans. 
  • Withdraw cash — Using life insurance for senior living can also be as simple as making a cash withdrawal plus it’s typically tax free except when the amount withdrawn is greater than the accrued value available. If your loan amount is greater than the accrued value, you will be taxed on the amount that exceeds the value. Of course, like an unpaid loan, the death benefit decreases as well.

Though LTC insurance has its benefits, you may find using life insurance for senior living provides the greatest flexibility and options. Before you choose a policy, you should meet with your financial advisor and research agencies. You want to choose insurance for senior living expenses that best meet your needs to make a great retirement a reality.