How Seniors Can Use Life Insurance to Pay for Home Care
A life settlement is the sale of an insurance policy to an institutional investor for more than its cash surrender value but less than its net death benefit. This can be extremely helpful for seniors to get needed cash from unneeded or unwanted life insurance policies, instead of simply letting the policies lapse. Even term life insurance polices with zero cash value can be extremely valuable to seniors, especially when care needs arise.
By using a life settlement, a senior who needs to pay for assisted living or home care can use their life insurance policy to generate an unexpected source of funds. Nursing home costs over $75,000 per year, and there is limited or no help available for assisted living or home care. Using an existing life insurance policy to generate available resources rather than letting the policy lapse or accepting only the cash value makes good sense. According to Insure.com, life settlements provided an average of 409% more cash to consumers than what they would have received by surrendering their policy.
Example: Don has limited mobility but doesn’t need 24×7 care. He is considering assisted living or part-time care in his home. Either way will cost him about $1,000 per week. He doesn’t want to deplete other investments too quickly, and he also concerned about whether to continue paying premiums on his existing life insurance policy. Don was thinking about simply cashing in his whole life policy for its surrender value, to generate cash. He also planned to stop paying the premiums on his term life policy, to save on monthly costs. Fortunately for Don, he learns about the life settlement option. As a result, he receives more than his cash value for his permanent policy. And he is thrilled to find that he can get a settlement for his term policy too, even though it has no cash value.
Naturally the life settlement is not right for everyone. For example, it might make more sense to hold onto a policy if other funds are available for paying costs of care. By selling a policy, a person gives up the right to the full death benefit for the policy’s beneficiary, in exchange for having cash available now for care costs.