How Insurance Can Help Pay for Senior Living

There are many ways to pay for senior living, some obvious and some not. First, there are personal assets like savings and real estate, investments such as stocks and bonds, and retirement accounts that offer a steady stream of funds. But for those who don’t have these long-term assets to dip into, there is insurance to consider.

Life insurance: A not-so-obvious option

A permanent life insurance policy (not term life insurance) offers several ways to use insurance for senior living that many seniors are not aware of. Since life insurance is often purchased to provide financial security for a family in the event of a parent’s death, many seniors forget there may be a considerable cash value accrued. Once the death benefit is no longer needed, using life insurance for senior living is an excellent option. Here’s a look at ways to use life insurance for senior living:

Take out a loan. Just like a loan from a bank, life insurance policyholders can borrow from the money that has built up over the life of the policy. As noted in the nerdwallet.com article, “When to Borrow Against Your Life Insurance Policy,” this is known as the cash value and it is the collateral for the loan. The advantages of taking out a life insurance loan include:

• No credit check or application process.
• Lower interest rates than banks or credit cards.
• No requirement to repay the loan.

The disadvantages include:

• Lower death benefit if the loan is not repaid before death.
• Interest payments on the loan continue until it’s repaid.
• The policy could lapse if the loan plus interest exceeds the cash value.
• Taxes may apply.

Cash withdrawal. Another simple way to use life insurance for senior living is to simply withdraw cash but again, there are stipulations. According to the usnews.com article, “When Is It OK To Draw Cash From A Life Insurance Policy?,” there are usually set limits on cash withdrawals and, to avoid taxes, the withdrawal should be taken from the “policy basis,” which is the amount of premiums already paid. Although it’s a fast way to get cash, the amount may reduce the death benefit.

Surrender. This is essentially the cancelation of a policy and the cash paid depends upon the policy’s value, so the older the policy, the greater the value. While it is simple, surrender may also carry charges and tax consequences. To learn more about the process, check out the marketwatch.com article “Surrendering a Life Insurance Policy.”

Life settlement. If none of these options for using insurance for senior living seems right, there is one more: selling the policy to a life settlement company. As described in the Investopedia.com article, “Life Settlement: Meaning, Benefits, FAQs,” this option provides a one-time cash payment while the purchaser retains the policy, pays the premiums, and receives the death benefit when the original policyholder dies. On the downside, cash from a life settlement may be taxed, as noted in the settlementbenefits.com article, “How Are Life Settlements Taxed? — Guide to Life Settlement Taxes.”

Using insurance to pay for senior living can be a great way to ensure a happy and safe retirement. To learn more about senior living at One Lincoln Park contact us and schedule a tour.