Long-term care can get expensive quickly, and Medicare typically won't cover these costs. To protect yourself and your family from an unnecessary financial burden, it may be worth setting up additional insurance, including long-term care protection. If you already have a life insurance policy, it may be possible to use your existing policy to cover the costs of needed care as well.

How Can Life Insurance Cover Long-Term Care Costs?

The main purpose of life insurance is to provide for your beneficiaries after you pass away. However, you can customize some policies to include benefits that can support you while you're alive, such as help covering long-term care costs. These policies set aside a sum of money that can be used either as a death benefit or to fund long-term care, if necessary.

For example, if you buy a $250,000 life insurance plan with the option to cover the same amount for long-term care, your policy could pay up to the full death benefit while you're alive. Your heirs would then receive whatever is left of your policy after you pass away.

If you spend the entire death benefit on long-term care, you would no longer have life insurance coverage, and your heirs wouldn't receive anything from the policy.

When Would the Policy Pay for Care?

Each life insurance policy contract lays out the conditions for when it would pay for long-term care. For example, if you have a chronic medical condition or need assistance with two or more activities of daily living (ADLs), such as eating, bathing or dressing, the policy could cover necessary care.

A medical provider would need to verify that you meet the conditions and require the help of a home caregiver or assisted living facility. If you qualify, the life insurance policy would pay out, just as other forms of long-term care insurance would.

Some policies may send a lump sum that you can freely spend. Others will set up a payment plan to reimburse you each month for your long-term care expenses up to a certain amount. When you sign up, make sure you understand the policy conditions, including when it would pay and how much it would cover.

What Are the Pros and Cons of These Policies?

If you want both long-term care and life insurance coverage, these policies are a way to cover both needs at once. Another advantage is that you can be certain you'll get some return on your money, either from using long-term care or from your heirs receiving a death benefit. If you buy standalone long-term care insurance, it's possible that you might never need care, which would mean paying for insurance that would go unused.

However, these combined life insurance policies may provide less coverage than individual long-term care and life insurance policies, and it's possible that you might get less from each payout through the combination. Also, remember that using your policy for long-term care would reduce the death benefit, leaving a smaller inheritance for your heirs.

How Do You Set Up This Form of Coverage?

Not all life insurance policies offer this feature. It's only found on permanent life insurance policies, such as whole life or universal, which do not expire. Temporary, term life insurance policies do not pay for long-term care.

To get this type of life insurance coverage, you could purchase a new policy and pay the monthly or annual premiums to keep the coverage active. If you don't want to keep paying premiums during your retirement, another option is to use part of your savings for a single-lump sum purchase.

If you already have life insurance, you may decide to have more than one policy, or you could transfer your current policy to one with long-term care benefits through a 1035 exchange. There are no tax consequences for doing so. In all situations, you would need to pass medical underwriting for the new policy based on your health. As with any type of life insurance, your chances of qualifying are better when you're younger and healthier.

Having a life insurance policy that covers long-term care costs can be beneficial for both you and your heirs, and it can also provide financial security for your future. If you like the idea of combining life insurance with long-term care, consider reaching out to an insurance agent to learn more about whether this approach would make sense for you.