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Can life insurance help with rising long-term care costs?

By Maryalene LaPonsie on August 7th, 2013

A survey conducted by John Hancock Life Insurance Co. finds long-term care costs have been steadily increasing during the past five years. For a private room in a nursing home, that means annual costs were just under $95,000 for a year's worth of care in 2013.

As families grapple with how best to pay for long-term care for elderly relatives, whole life insurance plans may be one source of money to help cover these costs.

Long term care costs keep going up

Using data from its "Cost of Care" surveys, John Hancock calculated the 2013 average for various types of long-term care. In addition, the company looked back five years to determine the average increase in the cost of care during those years for five long term care options.

  • Private nursing home room: Average annual cost of $94,170 with prices increasing an average of 3.6 percent per year.
  • Semi-private nursing home room: Average annual cost of $82,855 with prices increasing an average of 3.6 percent per year.
  • Assisted living facility: Average annual cost of $41,124 with prices increasing an average of 2 percent per year.
  • Home health aide care: Average annual cost of $29,640 with prices increasing an average of 1.3 percent per year.
  • Adult day care: Average annual cost of $18,460 with prices increasing an average of 1.6 percent per year.

"The cost of long-term care continues to be one of the most significant uninsured financial risks that an individual can face," said Michael Doughty, Executive Vice President & General Manager of John Hancock Insurance, in a written statement.

Using life insurance to pay for long-term care

Ideally, individuals would have long-term care insurance that would pay for monthly nursing home fees or similar expenses. Unfortunately, many seniors failed to buy these policies when they were younger. However, families facing steep long term care costs may find life insurance offers an additional source of money.

Permanent policies build cash value that can often be tapped into for any purpose, including the payment of long-term care bills. In addition, some life insurance policies provide the option of receiving a living benefit should a policyholder be admitted to a nursing home or other long term care facility. Finally, a life settlement -- that is the sale of a life insurance policy to a third party -- may be an option when other means of paying for long-term care have been exhausted.

Since tapping into a whole life policy's cash value or using a living benefit or living settlement can have tax repercussions, families should consult with a financial professional first. An accountant or tax professional can provide personal advice regarding whether these options may result in additional taxation and how they may affect an individual's estate.

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