Most people think of life insurance as payment of a cash benefit to their heirs after they pass away, a way to pay funeral expenses or an estate planning device. However, life insurance can also be a source of money before death to cover health expenses, home health care, home maintenance or any other important expense for you or an elderly parent. Here are several ways a life insurance policy might provide an elder care solution for needed cash without getting a bank loan.
If you have permanent life insurance, you may be able to obtain a loan against the policy proceeds. Of course, the amount of the loan depends on what the policy provides. You will likely have to pay interest on the amount borrowed, and if the loan is not repaid before you or your elderly loved one passes away, your heirs will probably receive a reduced death benefit. Another option may be to terminate the policy and receive the amount of cash which has accumulated over the years according to the policy’s provisions.
Some policies, including term life policies, have a provision for accelerated living benefits which is like a cash advance against the death benefit. The policy may only allow you or your loved one to use the benefit if you have an illness which will cause you to die within a short time and may limit the benefit to those illnesses stated in the policy. To receive this benefit, you or your loved one may be required to pay interest on the advance or a one time fee, and your heirs receive a reduced benefit.
Another way to receive cash from your life policy is to sell it to a company which will pay you a set amount and receive the value of the policy after you or your loved one pass away. You should approach this option with caution and see if your state insurance commissioner and the Better Business Bureau have any information which might help you make a decision about selling your policy.
Of course, before you take any action to borrow from or sell your life policy, always read the policy, speak with your insurance representative and consult your accountant about tax consequences. Our elder care services include helping you or your elderly loved one find reputable insurance consultants and accountants and make the right decision.
-Ralph Zatzkis, Elder Care Consultants of Texas