How does life insurance with long term care work?

Written by Hannah McCullough Insurance Researcher & Writer

Life insurance with long term care combines two products into one permanent policy. The death benefit protects your family, and the cash value can help pay for care you may need later. This guide explains the mechanics, the trade-offs, and what to check before you buy.

What is life insurance with long term care?

Life insurance with long term care is a permanent policy that lets you use its cash value to pay for qualifying care. The policy still pays a death benefit to your beneficiaries. You are essentially converting part of the policy’s value into a care fund while you are alive.

The New York State Department of Financial Services explains that there are basically two types of life insurance: term insurance and permanent insurance. Only the permanent kind builds cash value, and that cash value is what makes long term care funding possible.

Why permanent life insurance matters here

Permanent life insurance can provide death benefit protection for your lifetime, and the policy will provide for the build up of a cash value, according to the New York State Department of Financial Services. That cash value is the key. You can access it to pay for care, and the remaining death benefit still goes to your family.

Term life is different. Term life insurance provides death benefit protection for a certain period of time, and generally term policies do not build up any cash values. Without cash value, there is nothing to draw on for care. That is why long term care riders and hybrid policies sit on the permanent side of the market.

Which permanent policies can fund care?

Permanent insurance includes several different types of policies such as whole life, universal life, and variable universal life, per the New York State Department of Financial Services. The two you will see most often in long term care products are whole life and universal life.

The insurance industry generally categorizes whole life and universal life insurance as permanent life insurance, notes the Wisconsin Office of the Commissioner of Insurance. Both can carry a long term care rider, but they behave differently.

Whole life versus universal life for care funding

Whole life insurance policies have level premiums and a set death benefit, meaning you pay the same amount every year for a set amount of coverage, according to the Wisconsin Office of the Commissioner of Insurance. That predictability makes whole life easy to budget for, and the cash value grows on a set schedule.

Universal life insurance offers flexibility, meaning you may have the ability to adjust your premiums and coverage amounts. That flexibility can help if your budget changes, but it also means the policy can behave differently than you planned if you reduce premiums.

How the cash value pays for care

When you need care, you draw on the policy’s cash value. The insurer applies that money to qualifying care expenses, such as home care, assisted living, or nursing care. The death benefit is reduced by the amount you use, so your family receives less if you spend down the policy.

A permanent policy is designed to provide coverage for your entire life if sufficient premiums are paid, notes the Wisconsin Office of the Commissioner of Insurance. That condition matters. If you stop paying premiums, the policy can lapse, and the care funding disappears along with the death benefit.

What to check before you buy

Before you choose a policy, confirm how the care benefit is triggered. Some policies require a doctor to certify that you cannot perform daily activities. Others pay a fixed monthly amount once you qualify. Read the contract to see what counts as qualifying care.

Ask how the cash value grows and what happens if you need care early in the policy. A policy with a long waiting period may not help if you need care soon. Compare the premium you can sustain over many years, because a lapsed policy helps no one.

How this fits your overall plan

Life insurance with long term care is one way to cover two needs with one premium. It works best when you want a death benefit and a care fund in a single product. For many buyers, the first step is understanding the basics of life insurance definitions for new buyers so the policy language makes sense.

If you are weighing whether this approach fits your budget, a licensed life insurance agent can walk through the numbers. You can see an estimated rate and compare how much care funding each policy would provide before you commit.