Quick answer
A life insurance policy may help pay for care in several ways: an accelerated death benefit or long-term care rider (if the policy has one), borrowing against or withdrawing cash value (permanent policies), surrendering the policy for its cash value, or selling it to a third party in a life settlement. Each reduces what beneficiaries get, and some can affect taxes or Medicaid eligibility. Call the insurer first, and talk to a financial advisor before selling a policy. (800) 614-8388 to talk through care options.
The options
| Option | How it works | Trade-off |
|---|---|---|
| Accelerated death benefit or LTC rider | Pays part of the death benefit early if conditions in the policy are met | Lowers the death benefit |
| Policy loan | Borrow against cash value of a permanent policy | Unpaid loans and interest reduce the death benefit |
| Cash withdrawal or surrender | Take cash value, or cancel the policy for it | Coverage reduced or ends; possible taxes |
| Life settlement | Sell the policy to a third party for more than cash value, less than death benefit | Beneficiaries get nothing from the policy |
Steps to take
- Find the policy and call the insurer.
- Ask about riders, cash value, loan terms and surrender value.
- Ask a tax professional about tax effects.
- If Medicaid may be needed later, talk to an elder law attorney first.
- If considering a life settlement, compare several offers and understand fees.
Other ways to pay
See how to pay for assisted living for VA benefits, long-term care insurance, home sale proceeds and more.
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Questions families ask
Can you use life insurance to pay for assisted living?
Sometimes, through riders, cash value, policy loans, surrender or a life settlement.
What is a life settlement?
Selling a life insurance policy to a third party for a lump sum.
Does term life insurance have cash value?
Generally no. Cash value options apply to permanent policies.
Will using life insurance affect Medicaid?
It can. Talk to an elder law attorney before acting.