Using a "Whole" Life Insurance Policy as an Alternative to Long-Term Care Insurance

When planning for retirement you may face many uncertainties. How much income will you need year to year? Will you and / or your spouse experience a chronic illness? Or will you die prematurely? Many people rely on life insurance to provide a death benefit. But, did you know that some life insurance policies can also provide “living benefits”? A “whole” life insurance policy can do several things:

(1) it can accumulate money over time that may be taken out tax free in retirement,

(2) it can provide an increasing death benefit for a surviving spouse, thus allowing a retiree to spend and enjoy more of their wealth during retirement and

(3) a portion of the death benefit may be “accelerated” and used for costs associated with a critical / chronic illness.

If none of these scenarios arises, the death benefit can be used to leave a legacy to family, friends, or favored charity / education institution. Multiple solutions from one policy can simplify family finances and add value.

Using an accelerated death benefit to pay for costs associated with a chronic illness is an attractive feature for many retirees. Chronic illness onset and severe cognitive impairment are agerelated conditions – about 40% of those over age 85 have some form of cognitive impairment. It is estimated that by 2020, 81 million people (the majority older than age 65) will have two or more chronic conditions. The financial burden of care can be significant for family members and Medicare / Medicaid rules related to long term care are complex.

A life insurance policy with a long term care supplement can help a family cope with the costs of a chronic illness. Rather than spend from accumulated wealth ‐‐ IRAs, 401ks, investments – policy owners can simply take an “advance” on the death benefit.

Although rare, chronic illness can strike at a younger age. This long term care benefit is available to policy owners beginning at any age and can be accessed quickly and easily by completing a simple claim form. Many features make a life insurance policy more attractive than a long term care insurance policy. A “whole” life insurance policy has a guaranteed fixed premium for the life of the policy, whereas long term care insurance policy premiums may not be guaranteed fixed and can become unaffordable over time. Also, some owners of long term care insurance may never actually use the policy – and premiums paid will have been “wasted.” A “whole” life policy will always pay out – either for long term care, as a death benefit, or as a source of income in retirement.

This has been a guest post by Kathleen Finn, CFP®, EA.  If you'd like to learn more about this topic, please contact Kathleen at / 202-262-6085