Many people consider life insurance to be an essential component of a comprehensive financial strategy. Should you pass away during the coverage period, this protection might offer your loved ones financial security in the event of your passing. However, life insurance policies frequently come with supplementary advantages that might make the higher premium payment worthwhile. Paying for the long-term care, you might require before you pass away is one of the choices available to you here. Investing in long-term care insurance by way of a life insurance policy might be a smart financial move for you, but this depends on the particulars of your circumstance and how much money you have available.
The Costs Involved in Providing Long-Term Care
According to projections provided by the United States Department of Health and Human Services, seven out of ten persons who turn 65 today will require some type of long-term care at some point in their lives. In addition, the expenditures might quickly build up depending on the kind of care that you require. According to the Genworth Financial's 2020 Cost of Care Survey, the expenses of various types of care can also vary widely. Even the least expensive alternative can cost more than the median monthly total cost of housing in the United States, which the U.S. Census Bureau estimates to be $1,137. This varies depending on the severity of your disease and the ability of your loved ones to give care. If you are able to afford long-term care insurance, whether it is purchased via the same company that provides your life insurance or as a separate policy, it may be possible to protect your loved ones from the financial devastation that would be caused by the costs of your care.How to Get the Most Out of Your Life Insurance Policy to Pay for Long-Term Care
The provision of a death benefit is the major reason for purchasing life insurance. This benefit is paid out in the event that the insured person passes away within the term of the policy. On the other hand, if you employ the appropriate technique, you can add extra benefits to your life insurance policy, such as options for long-term care in the event that you require it. The following are some options that could be pursued.Change the Terms of Your Policy
You may be able to convert some or all of the death benefit of your term life insurance policy into the death benefit of a permanent life insurance policy, such as whole life or universal life, under the terms of some plans. Permanent insurance policies, as opposed to term insurance policies, include a cash-value component. A percentage of the money that you pay in premiums goes toward building the cash value of your policy, which increases as time passes. You can cancel your insurance policy at any moment and receive the remaining cash value in the policy. The most significant disadvantage of selecting this alternative is that it might take a new permanent life insurance policy a number of years to build up sufficient cash value to make selecting this alternative financially worthwhile. You will need to make detailed preparations in advance in the event that you decide to pursue this option. A significant number of people might not be able to afford this technique due to the fact that permanent insurance often has much higher premiums than term policies. Finally, the cash value of your insurance, which you receive when you surrender it, may be subject to taxation, which will result in a smaller payout for you than you had anticipated.Promote Your Insurance Plan
Viatical settlements give a third party the ability to buy all or part of your life insurance policy at a price that is less than the death benefit; in some cases, the amount paid out can be as high as 80 percent of the payout. If you suffer from a chronic or terminal illness, you may be able to sell your policy and get a viatical settlement in exchange for the money. You are not required to pay taxes on the money you get from the sale, and you can put that money toward meeting your costs associated with long-term care. There are, however, certain negatives associated with this choice, just like the other alternatives. To begin, the fees and commissions charged by your broker can consume as much as thirty percent of your total compensation. Also, the investor will receive the death benefit when you pass away rather than your original beneficiary, which may cause your loved ones financial difficulties if they were counting on those monies.Include a Rider for Long-Term Care
You may be able to add a long-term care rider to your existing life insurance policy, or you may be able to acquire a new policy that permits it as an add-on option. This will depend on the insurer that you choose to work with. The price of a long-term care rider can change depending on the insurance provider you choose as well as the specifics of your personal circumstance. The rider gives you the ability to access a portion of your death benefits in order to pay for the costs of long-term care while you are still alive. Having said that, you might only be eligible to receive a small portion of your death benefit each month, and the total amount of the benefit might be capped at a certain amount. The benefits you obtain will, in most cases, diminish the death benefit you are entitled to, but it may be worthwhile to do so in order to keep yourself and your loved ones financially afloat while you receive the necessary medical care.Invest in a Hybrid Insurance Plan
The advantages of having both life insurance and long-term care insurance under one policy might be yours with a hybrid policy. It is possible that the premiums for a hybrid policy will be fixed rather than subject to annual increases as opposed to the case with two standalone policies, one for each type of coverage. This is one of the reasons why you should consider purchasing a hybrid policy rather than two standalone policies. In addition, the medical underwriting for hybrid insurance is not as strict as it is for a long-term care policy, which means that it may be easier to obtain. However, keep in mind that the death benefit on the life insurance side of the policy will decrease if you utilize the policy to pay for long-term care services.Alternative Methods of Financing Long-Term Care
It is vital to explore all of your alternatives for paying for care before making any decisions regarding whether to obtain a policy to cover long-term care or to use your life insurance policy to assist pay for those expenses. The following are some additional possibilities: You may be able to pay for your care with your personal cash reserves if you have built up a sizable nest egg for your retirement and have done so in preparation for the time when you will need care. Programs run by the government: There is a laundry list of programs available through the government that can assist you in paying for long-term care. Options include Social Security Disability Income, Medicare, Medicaid, the Program of All-Inclusive Care for the Elderly (PACE), and State Health Insurance Assistance Programs (SHIP). PACE stands for the Program of All-Inclusive Care for the Elderly. It's possible that the Department of Veterans Affairs will be able to help you out if you're a member of the military community. Alternate possibilities: You may want to take into consideration a reverse mortgage, an annuity, or a trust in addition to purchasing a standalone policy for long-term care insurance. Because there is such a wide variety of potential courses of action available to you, it is highly recommended that you consult with a financial expert before making any final decisions.Should I Draw on My Life Insurance to Cover the Cost of Long-Term Care?
Converting your term policy to a permanent one, purchasing a hybrid policy, or adding a long-term care rider are all options that can extend your coverage but come with additional fees and restrictions. Although it may be more convenient and even less expensive to pay for long-term care with your life insurance policy, you should keep in mind that the benefits of doing so may not compare well to those of a typical long-term care policy. If you have a chronic illness or are towards the end of your life, a viatical settlement may be able to acquire you a large sum of money right now; yet, it may leave your loved ones destitute when you pass away. Because determining how to pay for long-term care is a substantial financial decision, it is imperative that you give careful consideration to each alternative before making a choice, regardless of whether you have life insurance or not.