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Paying for Long-Term Care: The Life Insurance and Annuity Alternatives

By Peter Keers June 18, 2022 Managing Money

In my previous Sixty and Me blog, Paying for Long-Term Care: What Are the Options? I noted there are three long-term care money sources:

  • Your own money
  • Government sources
  • Insurance

This blog will present information about using life insurance and annuities to cover these expenses.

The Other Insurance Types

Many people think about dedicated long-term care insurance as the only way insurance can pay for long-term care. However, life insurance and annuities provide alternatives also. (Also, see my Sixty and Me blog, Long-Term Care Insurance: Let’s Cover the Basics.)

Life Insurance

A common criticism of dedicated long-term care insurance is that premiums are “wasted” if a person never requires long-term care. However, a life insurance product has the advantage of paying a death benefit if long-term care is never used.

Today’s life insurance contracts can provide multiple ways to help pay for long-term care.

Alternative 1: Using Cash Value

Life insurance sifts into two categories: term and permanent. Term pays out a benefit at the time of death. Permanent life insurance pays a death benefit, too. However, it also has a cash value account that accumulates over time.

Cash value in a permanent life insurance policy can pay for long-term care in three ways:

  • Cash out by surrendering the policy.
  • Take a loan on the policy based on the cash value.
  • Sell the policy to a third party who, in turn, becomes the new beneficiary.

Alternative 2: Accelerated Death Benefit

An accelerated death benefit (ADB) means the policyholder can get money from the death benefit to pay for such costs as long-term care. Such provisions are common in both term and permanent life insurance policies.

However, the events that allow payment of an ADB differ from company to company. Therefore, when shopping for a policy, check if long-term care needs qualify for an ADB payout.

Alternative 3: Hybrid Policies

A hybrid policy pairs life insurance with a dedicated long-term care policy. Often, the contract requires any long-term care benefits paid out to be deducted from the eventual death benefit.

Alternative 4: Long-Term Care Riders

A rider is an optional additional benefit that “rides along” on a policy. For example, long-term care riders provide benefits similar to a hybrid policy. Like a hybrid policy, the amount paid out at death would depend on the amount in long-term care costs covered.

It is important to know that the policyholder does not get benefits for both the hybrid and rider until a medical professional certifies the need for long-term care.


Annuities pay a benefit over the owner’s lifetime. There are two annuity types. Both require upfront, lump-sum payments:

  • Immediate – income goes to the owner immediately after the initial payment.
  • Deferred – annuity income begins at a future date.

Long-term care-oriented annuities are the deferred type with long-term care riders. Like life insurance alternatives, the annuity owner still receives payments if the long-term care benefit is not used.

A significant disadvantage of using an annuity with a long-term care rider is the large, upfront payment which may be a barrier for many consumers. However, existing annuity holders may be able to make a tax-free 1035 transfer into a long-term care-oriented annuity. Payments from the new annuity are also not taxable if used for long-term care purposes.

Choose Carefully

Despite apparent advantages, using insurance products to pay for long-term care can be complicated. Therefore, it’s crucial to seek advice from trusted advisors who know your situation. Learn more about the details about paying for long-term care in my eBook at Living50+.

Have you considered the eventual need for long-term care? How would you manage it? Do you think life insurance or annuities would be the better option in your situation? Why or why not? If you have already purchased one or the other, please share your experience.

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The Author

Peter Keers is a writer and video blogger focusing on topics for the over-50 audience. Defining himself as a curious seeker, Peter’s interests range across both the art and the science of living an authentic and fulfilling life in the 21st century. See Peter’s eBooks on travel, long-term care, Medicare and other topics at

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