Using a life insurance policy to pay for long-term care
Long-term care costs arrive monthly and compound quickly. A life insurance policy may be one of the most accessible assets available to help cover them.
The median annual cost of a private room in a nursing facility exceeded $100,000 in 2025. Home health aide costs, assisted living, memory care — the expenses are substantial and often arrive before families have had time to plan. A life insurance policy that is no longer needed for its original purpose may be convertible into a lump sum that helps fund that care.
Why life insurance is often overlooked in long-term care planning
Most families think of life insurance as a benefit for beneficiaries after death, not as a resource available during life. But a permanent life insurance policy — whole life, universal life, or indexed universal life — has a present value that can be realized through a life settlement. The proceeds can be used for any purpose, including long-term care costs.
Life settlement vs. policy loans
Some policyholders fund care costs by taking loans against the policy's cash value. This keeps the policy in force but reduces the death benefit and accumulates interest. If the policy lapses while a loan is outstanding, the loan balance becomes taxable income. A life settlement eliminates the policy entirely in exchange for a lump sum — which may be substantially larger than the available loan amount — and removes the ongoing premium obligation.
Accelerated death benefits
Some life insurance policies include an accelerated death benefit (ADB) rider that allows the policyholder to access a portion of the death benefit while still alive, typically in the case of terminal or chronic illness. If your policy has an ADB rider, it is worth comparing what the rider would pay against what a life settlement or viatical settlement might return. The ADB is paid by the insurance company; a life settlement is paid by a third-party buyer who may offer more.
Medicaid and asset spend-down
Long-term care funded by Medicaid requires the recipient to spend down assets to a very low threshold. A life insurance policy with a face amount above a certain level may be counted as an asset for Medicaid purposes. Selling the policy and spending the proceeds on care may be part of a legitimate spend-down strategy, but the rules are complex and state-specific. A Medicaid planning attorney should be consulted before any decision.
The policy may be worth more than the cash surrender value.
Before surrendering a policy to fund care costs, find out what the secondary market would pay. The difference can be substantial.
Find out what the policy is worth.
One conversation tells you whether it qualifies and what the realistic range of proceeds looks like.