One way to fund long-term services and supports (LTSS) is to adapt or combine coverage with existing life insurance coverage. Unlike long-term care insurance, which younger people are not always inclined to purchase, life insurance products are more common among younger adults. People with life insurance policies can sometimes convert some or all to a living benefit (accelerated death benefits and viatical settlement agreements), which can be used to help people with life insurance policies pay for LTSS.
Accelerated death benefits allow policyholders to access benefits before death in the case of a terminal illness, a catastrophic illness or accident, or a need for LTSS. These benefits may be a feature of an existing life insurance policy or sold separately as a rider. Payouts are typically a percentage of the policy’s face value, up to 80 percent. These benefits may not be available for people with preexisting conditions, and payouts of accelerated benefits will reduce the amount available to beneficiaries when the policyholder dies.
People who are terminally ill or who no longer wish to keep a life insurance policy may have the option to sell their policy to a life settlement or viatical settlement company for an immediate payout. Recently the market for such settlements has expanded to include terminally ill people with longer life expectancies and even healthy older adults. People with longer life expectancies typically receive a smaller percentage of the face value of the policy (see also Chapter 11, Financial Services and Consumer Products - Financial Services—Investment and Securities Industry).
LIVING BENEFITS: Policy
Ensuring consumer protections
States should regulate accelerated death, life settlement, and viatical settlement benefits to ensure that consumers receive full disclosure of information about the advantages and disadvantages of accelerating benefits. They should also ensure that consumers receive fair actuarial compensation for the value of their life insurance.