Finding a way to afford senior care can feel overwhelming. Whether you’re planning for your future or helping a loved one transition into assisted living, the cost of care is often one of the first and most significant concerns. If your family has a life insurance policy in place, there may be options to use that policy to help cover assisted living expenses.
Below, we’ll discuss several ways families are using life insurance to pay for assisted living, including life settlements, viatical settlements, policy conversions, and accelerated death benefits. You’ll also find an overview of how each option works, who qualifies, and when each might make sense.
Selling your life insurance policy
One of the most common ways to use life insurance to pay for assisted living is by selling the policy to a third-party buyer. This is called a life settlement or, in some cases, a viatical settlement. The buyer gives you a lump-sum cash payment in exchange for ownership of the policy and its eventual death benefit.
Life settlements
A life settlement involves selling your life insurance policy to a licensed life settlement provider. The amount you receive is typically more than the policy’s cash surrender value but less than the full death benefit. After the sale, the buyer takes over premium payments and becomes the policy’s beneficiary.
Life settlements are usually available to seniors over age 65 who have a policy with a death benefit of at least $100,000. The value of the settlement depends on several factors: the insured person’s age and health, the policy’s face value, and how much in premiums is still owed.
Pros
Converts a non-liquid asset into cash
No restrictions on how funds are used
Can help pay for assisted living or other care
Cons
Beneficiaries will no longer receive the policy’s death benefit
May impact Medicaid eligibility or tax liability
Viatical settlements
Viatical settlements are similar to life settlements but are intended for people who have been diagnosed with a terminal illness and have a life expectancy of two years or less. Because of the shorter life expectancy, viatical settlements often offer a higher payout than standard life settlements.
Funds from a viatical settlement can be used for anything, including the cost of assisted living, medical treatments, or end-of-life comfort.
Pros
Higher payout potential
May be tax-free
Can ease financial burden during a difficult time
Cons
Only available to people with a qualifying diagnosis
May eliminate the death benefit for the surviving family
Converting life insurance into long-term care insurance
Another option is to convert an existing life insurance policy into a long-term care benefit plan. This process, sometimes called a life settlement conversion or life care assurance benefit, transfers the value of the life insurance policy into a designated fund used to pay for long-term care services, including assisted living.
Here’s how a life insurance policy for long-term care typically works: The policyholder works with a third-party administrator who manages the conversion and sets up a care benefits account. The account pays monthly disbursements directly to a senior living community or care provider, based on the individual’s care needs.
Pros
Keeps the funds dedicated to long-term care
Does not require selling the policy
Often faster than qualifying for Medicaid
Cons
Not all policies qualify, and term policies may need to be convertible
Some conversions may affect eligibility for other benefits
Funds may not transfer directly to the individual and must go toward care
When might this be a good option?
This method may appeal to families who want to ensure the policy’s value is used solely for care, or who want a structured way to make monthly payments to a senior living community.
If you’re looking for more general ways to manage costs, visit our guide on paying for assisted living.
Accelerated death benefits
Many life insurance policies, primarily whole or universal life policies, include accelerated death benefits (ADB). This allows the policyholder to access a portion of the death benefit early if diagnosed with a qualifying serious or terminal illness.
The insurance company pays accelerated benefits directly to the policyholder, reducing the remaining death benefit accordingly.
Pros
No need to sell or convert the policy
Usually tax-free
Funds can be used for any purpose, including assisted living
Cons
Only available if a serious health condition is diagnosed
The remaining death benefit will be lower
Some policies charge fees for accessing ADB
How do you request accelerated benefits?
Contact the insurance provider and ask whether the policy includes an ADB rider. You may need to submit medical documentation and complete an application process. Once approved, funds are typically disbursed as a lump sum.
The importance of seeking advice from an expert
Choosing the best way to use a life insurance policy to pay for assisted living depends on many factors, such as policy type, the resident’s health, financial goals, and family preferences. Some options offer more flexibility, while others may have tax or benefit implications that are easy to overlook.
Speaking with a licensed financial advisor or elder law attorney can help ensure that your family fully understands the options and consequences. An expert can:
- Review your policy details and benefits
- Help compare settlement vs. conversion options
- Advise on tax implications
- Evaluate how different choices may affect Medicaid eligibility
Senior living communities like The Arbors and The Ivy are also here to help. Our team understands how complex these decisions can be and is happy to provide guidance or connect you with trusted financial professionals.
We’re here to help you plan with confidence
Life insurance can be more than a future payout. It can become a meaningful way to support your loved one’s care today. Whether you’re considering a life settlement, converting a policy for long-term care, or exploring accelerated death benefits, there are trusted options worth exploring.
Understanding the qualifications, trade-offs, and timing of each approach can make a real difference in how your family plans for senior living. The Arbors and The Ivy is here to help you navigate the financial side of care while offering a warm, welcoming community your loved one can truly call home.
Call us today at 860.698.8613 or complete our online form to take the first step.
Life settlement FAQs
What is a life settlement?
A life settlement is the sale of a life insurance policy to a third-party buyer for a cash payout that is less than the death benefit but more than the surrender value.
What is a life insurance settlement provider?
This is a licensed company or individual that purchases life insurance policies through life settlements.
How are life settlements calculated?
Settlement amounts are based on life expectancy, policy value, remaining premium payments, and market conditions.
Are life settlements taxable?
In some cases, yes. Depending on how much you receive and the original cost basis of the policy, a portion may be taxed as income or capital gains. Consult a financial advisor or tax professional.
Who qualifies for a life settlement?
Seniors typically over age 65 who have a life insurance policy with a face value of at least $100,000. Some providers may require that the policy be at least two years old.