Life Insurance and Long-Term Care: More Connected Than You Think

Life insurance is usually framed as protection for the people you leave behind. It pays a death benefit to your family, helping them cover bills, pay off a mortgage, or replace lost income. But when you look at long-term care, life insurance can sometimes become a tool for the living – a way to access funds or benefits while you are still here.

A quick refresher (for  more detail see our article last year HERE)

• Term life is pure insurance: coverage for a set number of years, usually at the lowest cost per dollar of death benefit. There is no cash value, no ability to borrow, and no use for long-term care.
• Permanent policies like whole life or universal life are more expensive but build cash value over time. These policies sometimes include optional riders or contract features that tie directly into long-term care.

How life insurance ties into long-term care:

Long-term care riders

• Many newer permanent policies offer riders that allow you to accelerate part of your death benefit if you meet the same “activities of daily living” tests used to trigger long-term care insurance.
• Example: If you buy a $500,000 policy and later need help bathing, dressing, or eating, you may be able to use a portion of that death benefit to pay for care while you’re alive. The trade-off: every dollar used for LTC reduces the payout to beneficiaries.
• Riders often come with caps or daily limits (e.g., up to 2 percent of the death benefit per month), and they must usually be elected at the time you buy the policy, not added later.

Accelerated death benefits (ADB)

• Even without an LTC rider, many policies include accelerated benefits if you are terminally ill or meet severe health conditions.
• These are not designed for long-term custodial care, but they can provide liquidity in cases where serious illness overlaps with care needs.

Cash value access

• Whole and universal life policies build cash value that can be borrowed against or withdrawn.
• Loans are not taxable if structured properly, but they accrue interest and reduce both the cash value and the death benefit.
• Full surrenders may provide lump sums that can be redirected to care costs, but they can trigger taxes on any gains.

Late-in-life decisions.
Many people buy life insurance in their 30s or 40s to protect a young family. By the time long-term care becomes a real concern, those children are adults and the original reason for coverage may no longer exist. At that point, a policy can be:

• Kept for legacy. Maintaining the death benefit provides certainty for heirs, even if premiums are heavy.
• Repurposed for care. Riders, ADBs, or cash value withdrawals can make the policy an asset for funding care needs.
• Cashed out or sold. In some cases, policies can be surrendered for cash, or sold in a life settlement if premiums are unaffordable. Both options may bring funds forward for care but eliminate the death benefit entirely.

Trade-offs to consider.

• Borrowing or surrendering reduces the benefit heirs receive, which may undermine the original intent of buying the policy.
• LTC riders add cost to premiums and may not cover as much as a standalone policy.
• Life settlements may provide liquidity but often return less than the policy’s face value and can have tax consequences.
• Underwriting matters: if you already have health issues, buying a new policy with an LTC rider may not even be an option.

Why this matters for long-term care.
Standalone long-term care insurance has become prohibitively expensive for many households, with premiums climbing and benefits capped. Life insurance cannot replace it, but it can act as a supplemental funding source when care needs arise. Policies originally bought to protect dependents can, decades later, become financial bridges that ease the cost of care or prevent families from depleting savings too quickly.

The bottom line: life insurance is not just about dying. In the broader context of long-term care, it can also be a living resource – if you understand the features, limits, and trade-offs before you need them.