A couple of insurance products can help offset the costs of living in a senior living community or other forms of elder care. They include stand-alone long-term care insurance policies and life insurance policies converted into long-term care benefits.
Stand-alone long-term care insurance
If you have a long-term care insurance policy, the terms of that policy will dictate when you’re eligible to receive benefits, how much, and (sometimes) for how long. It may cover the cost of care at home, in adult day care, in assisted living facilities and skilled nursing facilities.
According to an article in Forbes Advisor, the average benefit period policyholders choose is three years. And a typical plan pays out $3,500 to $5,000 a month in benefits. The maximum benefit is then based on the monthly benefit amount and benefit period. For example, a long-term care policy with a $5,000 monthly benefit and a three-year benefit period would have a maximum benefit of $180,000.
Instead of specifying a benefit or “elimination” period, some newer long-term care policies set out a deductible and a maximum benefit over the lifetime of the policy as well as a monthly maximum benefit.
Your policy may include an option that adjusts benefits automatically to protect against inflation.
Conversion of a life insurance policy
If you don’t have long-term care insurance, you may be able to convert an existing life insurance policy so that it pays a monthly benefit that can go towards senior living costs.
This is sometimes referred to as a long-term care benefit plan.
(Note: Benefit payments are usually made directly to your long-term care provider instead of you.)
The conversion process transfers ownership of the life insurance policy to an entity that acts as the benefits administrator. The benefits administrator takes over responsibility for paying the monthly premiums on the policy.
Converting a life insurance policy is a good option for some people, but not everyone. For instance, if your policy is small or it has a large cash value built into it, it may make more sense to take the cash value rather than convert it. Also keep in mind that converting the policy may mean giving up some or all of the death benefit.
For more details on this topic (including a discussion of hybrid life insurance / long-term care policies), check out “Paying for Long-Term Care: How It’s Changing” at Investopedia.com.
You can also download our free Financial Planning for Retirement Living guide.