If you’re starting to navigate the cost of memory care and how your family will pay for senior living, it’s time to consider all the options. One option that’s often overlooked is a life settlement – it’s when a life insurance policy that’s not needed or no longer affordable is converted into a financial tool that can be used to help pay for the cost of memory care. Our expert team at Terra Vista is here with a guide to life settlements, how they work, and who qualifies for them. Here’s what you need to know!
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What Are Life Settlements?
A life settlement is the sale of an existing life insurance policy to a third party (usually an investor or broker) for more than its cash surrender value. After the policy is sold, the buyer takes over the responsibility of paying the premium payments and becomes the beneficiary of the policy. To break things down into even simpler terms, life settlements allow seniors to convert their life insurance policy into cash that they can use right away. That’s what makes them such a great option to help pay for the cost of senior living or memory care.
How Do Life Settlements Work?
To help you have a clear understanding of life settlements, here’s a breakdown of the way they work.
Step 1: Assessment
To start a life settlement, the policyholder (who is usually 65 or older) contacts a life settlement company or broker to see if their life insurance policy qualifies for settlement. Most policies need to have a face value of $100,000 or more to qualify.
Step 2: Valuation
During this step, the life settlement provider will review the life insurance policy details. They’ll consider elements like the policy type, as well as the age and health condition of the insured policyholder, to determine the total value of the policy.
Step 3: Offer
If the insurance policy qualifies for a life settlement, then the life settlement provider will make a cash offer. The amount offered is typically higher than the surrender value of the policy, but lower than the death benefit (what is paid out if the policyholder passes away).
Step 4: Sale and Transfer
Once the offer and terms are agreed upon, the life insurance policy will be legally transferred to the buyer. The buyer then becomes responsible for all future premiums and will collect the death benefit with the original insured policyholder passes away.
Step 5: Payout
During the payout phase of a life settlement, the policyholder will receive a lump sum cash payment. These funds can be used immediately to help cover the cost of memory care or senior living.
Who Qualifies for Life Settlements?
Not every insured policyholder or policy will qualify for a life settlement. Here are some general guidelines to keep in mind when exploring this option.
- Typically, policyholders must be 65 or older to qualify. Younger individuals may qualify if they have significant health issues.
- Universal life, whole life, and convertible life term insurance policies are the most accepted with it comes to life settlements.
- The policy value usually has to be $100,000 or more in terms of face value.
- Policyholders with declining health usually receive higher offers because their policy may mature sooner.
Using Life Settlements to Pay for the Cost of Memory Care
The cost of memory care can be substantial, and a life settlement is an efficient way to help offset or cover it. Life settlements offer:
- Immediate access to cash, which can be used to pay for monthly care.
- An alternative to liquidating other assets like property or retirement accounts.
- A way to reduce the financial worry or burden on family members, especially when other funding options aren’t available.
What You Should Keep in Mind About Life Settlements
Life settlements can be a useful way to cover the cost of memory care, but they’re not right for everyone. Before you start considering one as a source of funding, you should:
- Compare offers from multiple providers to get the best one, or work with a licensed broker who will advocate for you.
- Have a full understanding of the tax implications as sometimes the proceeds are taxable.
- Beware of scams. You should only work with reputable, licensed life settlement companies.
Learn More About the Cost of Memory Care with Terra Vista
If you’re still uncertain whether or not a life settlement is the best option to pay for the cost of memory care for your loved one, let our team help. Our experienced advisors are here to walk you through costs, explore funding options, and answer any questions you have.
Download our guide to the financial and affordability of memory care to learn more ways you can pay for memory care costs to ensure your loved one is in a safe, secure and supportive environment.
