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Using Death Benefit Loans to Pay for Long Term Care
| Definition |
Qualifications |
Costs |
| Pros & Cons |
Benefit Types & Limits |
How to Apply |
| Overview of Death Benefit Loans | ||
Death benefits loans are loans taken by a life insurance policy holder from their life insurance company. Loans are actually taken against the cash value of the policy, not the death benefit amount. If the loan is not re-paid with interest then when the insured passes, the death benefits are reduced by the amount of outstanding loan. Note this differs from an accelerated death benefit in that death benefit loans are designed to be re-paid.
If a senior has permanent, whole life or universal life insurance (but not term life) then it is likely they are eligible to borrow money against the cash value of the policy from their life insurance provider.
Death benefit loans have low interest rates and don’t have re-payment schedules. Borrowers choose to repay on their own schedule. Should they pass away without having repaid the loan, the outstanding amount is deducted from their death benefit.
A senior borrowing money to help pay for their long term care is unlikely to be in a position to re-pay the loan. The loan comes with interest which continues to grow if the loan isn’t repaid. Therefore, if the beneficiaries of the life insurance do not need the money, then a senior might be better served with a life settlement instead of a death benefit loan.
Death benefit loans are given as a lump sum and borrowers can use the money for any purpose they choose including at home care, adult day care, assisted living or skilled nursing.
Be Aware That:
Death benefit loans are only available with "whole life" or "universal life" policies as opposed to “term life” policies.
Typically one has to have held the policy for 3-5 years before it has any cash value against which they can borrow money.
Typically one has to have held the policy for 3-5 years before it has any cash value against which they can borrow money.
Death Benefit Loans are Also Known As:
Note death benefit loans are sometimes confused with accelerated death benefits.
Generally, any person that has held a policy long enough to accumulate a cash value is qualified to borrow against it.
Age Requirements
There are no age requirements to take a death benefit loan from a life insurance company.
Disabilities / Health Requirements
There are no health requirements to take a death benefit loan.
Family Status
Marital or family status is not a factor considered by insurers in giving death benefit loans.
Financial Status Requirements
The financial status of the insured is not a factor in giving death benefit loans.
Veteran Status Requirements
The veteran status of the insured is not a factor in giving death benefit loans.
Geographic Requirements
The geographic location of the insured is not a factor in giving death benefit loans.
Other Requirements
To obtain a death benefit loan, a senior must have permanent, whole life or universal life insurance (but not term life).
The individual must have held the policy long enough to have accumulated a cash value against which to borrow. This is typically 3-5 years.
The individual must have held the policy long enough to have accumulated a cash value against which to borrow. This is typically 3-5 years.
Types of Benefit Payout
Death benefit loans are paid out in a single lump sum.
Restrictions on How Payout Can be Used
There are no restrictions on how a death benefit loan can be used.
Benefits Amounts & Limits
Each life insurance policy if different, but most will allow the insured to borrow 90-100% of the cash value for a death benefit loan.
Time to Receive Benefits
The qualification process for death benefit loans is not complicated therefore the time to receive the loan is fairly quick, typically within 30 days.
This Source Can Help For
Any purpose the policyholder or their family choose including:
-In-home care
-Adult day care
-Assisted living / senior living
-Skilled nursing home care
-Alzheimer's / dementia care
-Adult day care
-Assisted living / senior living
-Skilled nursing home care
-Alzheimer's / dementia care
Interest rates for a death benefit loan should be very low. Some insurers may apply other fees.
Individuals wanting to borrow against their life insurance death benefit should contact their life insurance provider directly.
