One consideration could be converting your term policy into permanent life insurance. Whole life or permanent insurance policies, while significantly more expensive than term insurance, offer the flexibility of tapping into the policy’s cash value while you’re still alive.
You can borrow against the cash value of the policy’s death benefit, or just elect to take money from the policy, and lessen the death benefit payout. But be careful if you make that move. “Be aware that if you’re depleting your cash value [in a whole life policy], and it’s not considered a loan, that’s going to be a taxable event,” says certified estate planner Jean Dorrell.
One unique benefit of a term life policy that is convertible to permanent insurance is that it lets you retain your current health status through the life of the policy. According to Simbro, this means your term policy allows you to change the policy to permanent insurance “without going through underwriting again.” That means no new health exam.
That’s critical, because the younger you are when you buy permanent insurance, the cheaper it is.
3. Lock in long-term care coverage.
“Buying long-term care while you’re healthy and locking in your insurability is way easier at age 50 than, say, age 75,” Simbro says.
Waiting to purchase long-term care insurance can mean substantially higher premiums. Research from Northwestern Mutual shows that a man or woman buying a long-term care policy at age 50 could pay an annual premium of $3,302. But delaying the purchase for a decade would wind up costing the same person $6,678 annually — more than double the age 50 rate. Waiting to buy at age 70 would result in an annual premium of $17,760, according to Northwestern’s data.
And don’t mistakenly believe, as many people do, that long-term care coverage is only for 80-year-olds. In reality, about 40 percent of Americans receiving long-term care benefits are between the ages of 18 and 64, according to the Department of Health and Human Services.
But what if you still think you can’t afford long-term care insurance?
Simbro suggests tapping into the “living benefits” that your permanent life insurance offers.
“You can annuitize permanent life insurance,” he says, using the cash value as a way to generate an annual retirement income stream. You can also use either the cash value or the dividends from life insurance to directly fund your long-term care premiums, Simbro says.
As with life insurance, long-term care coverage can vary greatly based on where you live, family history and how long you want the coverage to last.
“Don’t presume there’s a one-size-fits-all amount that everyone should have,” Simbro says.