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Navigating Life Insurance & End-of-Life Care Options

By: Katelynne Shepard • Edited by: Jennifer Wills • 10 cited sources • Updated Aug 30, 2024

Financial planning for retirement and end-of-life care begins early in your career. While traditional retirement accounts can help keep your income stable, sometimes end-of-life care costs significantly more than expected. Leveraging life insurance strategically can bridge the gap between retirement income and the cost of care, helping you avoid leaving behind financial burdens for your family as your needs grow with your age.

Key Takeaways

• The cost of end-of-life care can be overwhelming, but careful financial planning can mitigate it.
• Life insurance often serves as a valuable asset and can supplement retirement income to cover end-of-life costs.
• Other financing and payment options, such as Medicare or private insurance policies and life insurance policy riders, can make care more affordable.

The Importance of Life Insurance and Financial Planning For Seniors

Most people think of life insurance as a payout issued after their death. While this is true, it’s also possible to leverage your insurance policies to accrue cash value that you can borrow from as you age to cover end-of-life care or funeral costs. 

Costs Associated With End-of-Life Care

The cost of end-of-life care varies based on several factors, from where you live to the type of care you may require. The national average cost of a semiprivate nursing home facility, which may also provide palliative and hospice care, in 2023 was $8,669 per month^[1]. If care is provided at home, it can get even more costly. Home hospice care can cost $1,500 per day^[2].

These costs can add up quickly. However, life insurance can help cover them.

The Different Life Insurance Policies and Their Benefits

Life insurance is an umbrella term for several policy types. The three most common are term life, whole life, and universal life policies. 

Whole Life Insurance

Whole life insurance, as the name implies, lasts your entire life. Upon death, your beneficiary receives a cash payout based on how much insurance you purchased. It also accrues cash value.

You can borrow against the cash value. However, the amount borrowed may have a high interest rate, with the outstanding loan balance being paid by the death benefit received by your beneficiaries^[3].

Term Life Insurance

Term life insurance provides a death benefit if you die within the specified timeframe, which is usually 10 or 20 years from starting the policy. It may also end upon reaching a certain age. However, it does not include a cash value component, so it’s primarily used to leave something behind for your beneficiaries^[4].

Universal Life Insurance

Universal life insurance is a permanent policy that accrues cash value. Flexible premiums let you adjust monthly payments within defined limits.

Additionally, your cash value grows through investments. Typically, you can choose the investment vehicles of your choice, and you receive the returns. Returns are not always guaranteed, and the cash value accrued is typically lost upon death. However, you can draw from your cash value for end-of-life care^[5].

Integrating Life Insurance With End-of-Life Care

Life insurance policy riders can help you tailor your coverage to assist with end-of-life care. For example, accelerated death benefits (ADBs) allow policyholders to receive a cash advance against the death benefit if they’ve been diagnosed with a terminal illness while they are still alive. The ADB reduces the death benefit paid to your beneficiaries, but it can help cover the costs of your care^[6].

Viatical settlements offer another venue to leverage your life insurance policy for usable cash when you need it. If you have a terminal or chronic illness, you can sell your life insurance policy, typically at a discount from its face value. The purchaser becomes the beneficiary, pays a lump sum to the insured, and covers all future premiums on the policy until the purchaser dies. They then cash out the full value of the policy^[7].

No one plans on being diagnosed with a terminal illness or condition that requires significant end-of-life care. However, planning for the unexpected and ensuring you have sufficient insurance coverage can help mitigate the financial risk during this time. 

Financing & Payment Options for Care Toward the End of Life

Other payment options can help with covering end-of-life care, including:

• Personal savings and assets. These are often the first to be used to cover out-of-pocket care expenses.
• Private insurance. This can reduce how much you must pay for your care, but you will typically still have a copay and premium for coverage.
• Medicaid. This federal healthcare service provides free or low-cost health insurance for low-income seniors.
• Medicare. Depending on whether you have Original Medicare or a Medicare Advantage Plan, your coverage may look different. Original Medicare covers inpatient hospital care, skilled nursing care, hospice, home healthcare, and general healthcare procedures^[8]. If you have a Medicare Advantage Plan, you will receive hospice care under Original Medicare. Medicare will cover all hospice care. To qualify, your doctor must certify that you have a life expectancy of 6 months or less. However, your hospice care can be renewed indefinitely if your doctor recertifies your diagnosis with each renewal^[9].
• Veterans benefits. Qualifying veterans may receive access to hospice care at home, as outpatient care, or inpatient in a hospital or other facility^[10]. 
• Long-term care insurance. Long-term care insurance is a form of private insurance that covers all or part of the cost of assisted living or in-home care for those 65 or older or with a chronic condition^[11].

Be Proactive With Your Financial Planning

Life insurance and proactive financial planning can take the worries out of your later years. Creating a comprehensive financial plan, complete with life insurance and other plans and policies, can allow for several contingency plans in case the cost of your end-of-life care is more than you initially estimated.

I recommend securing long-term care insurance as early as possible. Younger applicants typically pay lower premiums than older applicants.

Jennifer Wills, Former Life Insurance Agent

Assess your current financial situation and work with professionals, such as an insurance agent and financial planner, to help you ensure an ironclad retirement plan that aligns with your personal, financial, and family goals. 

Written by Katelynne Shepard

Katelynne Shepard is a writer, editor and SME who is proficient at crafting and reviewing content. She has been a full-time copywriter and editor since 2011 and has written content for Fortune 500 companies, independent law firms, indie publishers, small-business owners and mainstream websites. She specializes in parenting, lifestyle, family law, personal injury, criminal law, immigration law, astrology, personal finance, education and health care. In addition to thousands of e-commerce product and category descriptions, Verle's work includes SEO blogs, social media posts and long-form informational articles.

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Edited by Jennifer Wills

Jennifer Wills is a finance SME with 12 years of experience as a licensed financial coach. She used her expertise and insurance and securities licensing to create customized plans to help families become properly protected, debt-free, and financially independent. When the time came for a career change, Jennifer used her skills and experience to build a freelance writing business. She started writing blog posts for an accounting and finance staffing agency and later wrote articles for Investopedia. Today, Jennifer writes content for clients in 75+ industries. In her downtime, she enjoys spending time with friends and traveling.