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Does Life Insurance Cover Long-Term Care?


Financing long-term care is an increasingly expensive problem for all, including aging military servicemembers and Veterans. A recent study by Genworth found that the cost for assisted living facilities in 2020 averaged $51,600 per year, and was at least double that amount for a private room at a nursing home.

While some people pay for these costs using their savings or retirement income, another possible option may be to turn to life insurance with long-term care. Not all policies include long-term care coverage; however, some whole life policies — such as AAFMAA’s Value-Added Whole Life, ANNUITYLife®, and Wealth Builder Life Insurance — are essentially a long-term care life insurance hybrid because they include a feature called a long-term care settlement option at no additional cost. In this article, we’ll break down some life insurance with long-term care options available to you.

What Is a Long-Term Care Settlement Option (LTCSO)?

AAFMAA’s Long-Term Care Settlement Option (LTCSO) allows the policyholder to convert a whole life death benefit into regular, periodic payments prior to death to help offset the cost of a nursing home, custodial, or home healthcare for Members who meet specific IRS qualifications — relieving the burden of that expense from the insured and their family.

LTCSO provides what’s called an “accelerated death benefit,” which provides for you and your family through the following:

  • The insured receives an early death benefit payout while they are still living.
  • Funds cover expenses related to terminal illness or disabling conditions that impact the quality of life and/or life expectancy.
  • Any excess insurance coverage above the amount elected for the LTCSO remains in effect as life insurance with an adjusted premium. 
  • Designated beneficiaries receive the remaining death benefit should the insured die before the end of the monthly payout period.
  • Beneficiaries get exclusive AAFMAA’s Survivor Assistance Services at the time of the insured’s death, even if the LTCSO is completely exhausted.

What Other Ways Can Life Insurance Pay for Long-Term Care?

Not all life insurance policies will help with long-term care costs. Term policies, for example, accumulate no cash value and end when the term expires. A term policy typically cannot be used to pay for long-term care. However, a permanent policy, such as whole life or universal life, builds cash value. In some cases, you can use that money to cover long-term care. 

Before we get into the details of how to do that, it’s important to note that these are finalizing actions and you will lose the life insurance benefit that you’ve been investing in up to this point. As such, these actions should either be part of a  comprehensive financial plan where you have some residual coverage in a separate policy to protect your family from your final expenses, or you should consider this as your last resort in funding necessary long-term care services:

  1. Borrowing against your policy. You can take out a loan from your policy’s cash value and use that to pay for long-term care. If you choose to repay the loan, you will pay interest — although it’s often lower than a traditional loan. You can also choose to not pay the money back and just keep a reduced death benefit.
  2. Create a living benefit program with your life policy. This is a lump-sum payment that lets you receive up to 50% of your policy’s death benefit for care, while still keeping some set aside for your beneficiaries. In most cases, you must have at least a $100,000 policy in place.
  3. Surrender your policy. This means you give up the policy’s ownership and death benefit in exchange for the cash value. Keep in mind that if the cash value is more than the amount of the premiums you’ve paid, you will have to pay taxes on the difference. You likely will also have fees taken out of the cash value. Surrendering a policy is generally not recommended.
  4. Sell your policy. Sometimes third parties are interested in purchasing life insurance policies for market value. You can then use the proceeds to pay for long-term care. You may be able to sell any type of life insurance policy, including term insurance, depending on the details of the policy. Again, this is a “last resort” option, and you should always seek professional guidance, ensure you have a good understanding of the policy value, and get multiple quotes before you agree to sell.

The best option is to plan ahead and take out a life insurance policy that provides an accelerated death benefit, such as those offered by AAFMAA. To learn more about how AAFMAA’s life insurance policies can help cover the costs of long-term care, call an AAFMAA Membership Coordinator today at 866-533-0521.

Common Questions

Yes, your AAFMAA policy will cover a death related to COVID-19 if you are an existing AAFMAA Member with a policy issued more than two years ago or prior to a COVID-19 diagnosis, even within the first two years the policy is owned. The only exclusion on AAFMAA policies is death by suicide within the first two years.

However it is important to note that death claims made against an underwritten policy issued within the last two years are contestable, regardless of the cause of death. Contestable death claims are reviewed and subject to denial if we find undisclosed material information that would have changed the outcome of the policy issuance decision.

Yes, if you are applying for a policy that requires medical underwriting, you must disclose a positive COVID-19 diagnosis. Not doing so would be considered material misrepresentation and could result in your policy being voided.

As mentioned above, death claims made against an underwritten policy issued within the last two years are contestable, regardless of the cause of death. Additionally, you don’t have to die for a material misrepresentation to void your contract. The policy can be voided at any point within the first two years if AAFMAA finds that you provided incorrect information about your health history and that the correct information would have prevented us from issuing the policy.

If you were diagnosed with having contracted COVID-19 prior to applying for life insurance and you failed to disclose that diagnosis on your application, your death claim could be denied. This is because, if you had disclosed your COVID-19 diagnosis, we would have followed current industry guidelines and possibly postponed acceptance of your application. In this case, your policy would be voided and your survivors would only receive a refund of the premiums you had paid.

No, the COVID-19 vaccine is classified as a typical wellness check, for which we do not require disclosures and do not deny death claims. We strongly suggest that our Members follow CDC recommendations and receive the COVID-19 vaccination as soon as they are eligible.

Industry guidelines indicate that a COVID-19 diagnosis may postpone acceptance of your application for a period of three weeks to 1 year following recovery, depending on the severity of symptoms and treatment. This timeline is subject to change as new information becomes available and industry guidelines are adjusted accordingly. Those who experience a full recovery may be considered for issue before 12 months, while serious cases (such as those which required a ventilator) may be postponed for longer.

No. Receiving a COVID-19 vaccination will not affect the acceptance of your application.

No, AAFMAA cannot change your premiums or your health classification on a policy you currently hold. Your premiums and health classification will remain the same, even if you have been diagnosed with COVID-19 or you are at a higher risk of exposure due to your job, living situation, or recent travel, or if you get one of the COVID-19 vaccinations approved for emergency use by the USFDA.