Most often when people buy life insurance, they expect never to collect a payout themselves. Yet while a death benefit is the main purpose of most life insurance policies, it’s not the only way that life insurance can provide some financial stability when times get tough: Sometimes the policyholder can tap into benefits while they’re still alive and needing care. Read on to learn more about making this aspect of life insurance work for you and your loved ones.

What are the different kinds of life insurance?

 There are two main types: Term life insurance, which is purchased for a set period of time and provides a death benefit to surviving loved ones if the policyholder dies during that term, and permanent life insurance, which never expires as long as the policyholder continues paying premiums.

Permanent life insurance may either be whole life or universal. Whole life insurance includes a death benefit, cash value and premiums that are fixed at the time the policy is established. Universal life insurance also covers the policyholder until the end of their life, but the death benefit, cash value and premiums are not locked in.

How do I use life insurance benefits for senior living?

There are a few different ways to tap into life insurance for long-term care, including using accelerated death benefits, drawing on the plan’s cash value, and making a life settlement or viatical settlement sale. Each has pros and cons, and in each case, the death benefit left to heirs is reduced or eliminated.

What are accelerated death benefits?

An accelerated death benefit rider on a life insurance policy enables tax-free advance access to a percentage of the death payout. To use it, the insured must require long-term care for a catastrophic, chronic or terminal health problem. Usually the cash advance is capped at half of the total death benefit, or a monthly payout of one to two percent. While this amount is generally not as high as benefits from a long-term care insurance policy, accelerated death benefits require little to no health screening, making them a good option for those who are ineligible for long-term care insurance due to health reasons.

How do I utilize my plan’s cash value?

If you have a permanent life insurance policy, you may borrow against it or surrender the plan for its cash value. Loans may total up to 90 percent of the plan’s cash value and can be paid back with interest on a flexible schedule. Otherwise, you may surrender the policy in exchange for its entire cash value—less a fee of about 10 to 35 percent—thereby terminating the policy.

What is a life settlement?

 Those wishing to sell their life insurance policy to a third party may choose a life settlement, receiving a lump sum payment greater than the plan’s cash value but less than its death benefit. Doing so transfers control of the full death benefit to the third party. The income from the sale may be taxable. Seniors must be cautious to avoid unscrupulous life settlement transactions; these considerations from the Financial Industry Regulatory Authority can help.

What is a viatical settlement?

A viatical settlement is similar to a life settlement, but is available only to people who are chronically or terminally ill. The settlement usually totals 50 to 70 percent of the policy’s death benefit, and often is not subject to taxes.

What other options are there?

 If you’re still shopping for a plan, consider a hybrid long-term care insurance policy. These types of plans combine long-term care coverage with a life insurance payout in the event the care benefits aren’t used.

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