The kids are grown and the house is paid off. So, your life insurance policy may seem to have outlived its purpose. You may be tempted to cash it in or let it lapse. Rather than give up the protection you’ve paid for over the years, why not repurpose it for another financial need — long-term care?


The cost of covering your long-term care, should the need arise, could be a greater threat to your family’s finances than your death. According to the Genworth 2015 Cost of Care Survey, the average cost of a semiprivate room in a nursing home is about $80,300 a year, and $91,250 per year for a private room. Home health aide care averages $20 an hour.* Are you and your family prepared to cover these rising costs?


If not, and you have a life insurance policy on your life that has outlived the purposes for which you originally bought it, you may want to consider a “Section 1035 exchange” (so-named after the federal tax law section that authorizes it). Under a Sec. 1035 exchange, you and your financial professional arrange for the cash value of your existing in-force life insurance policy to be used to secure a qualified long-term care insurance policy. As long as tax rules are followed, you won’t have to pay federal income tax on the policy exchange. To qualify for tax-free treatment, the person insured under the long-term care policy must be the same person insured under the life insurance policy. Other requirements apply.


A Sec. 1035 exchange isn’t appropriate for everyone. Before making any changes to your life insurance coverage, you’ll want to review your current coverage and needs with your financial professional. You may find you still have life insurance needs that you’ve overlooked. In that case, you’ll have to use other assets to purchase long-term care insurance or otherwise cover potential long-term care expenses. If you determine a policy exchange is right for you, secure tax and other professional assistance in making the exchange.

* Genworth 2015 Cost of Care SurveyCopyrighted property of Newkirk Products, Inc. Symmetry has been granted permission to reproduce a portion of this publication through our license agreement with Newkirk. Symmetry Partners, LLC does not provide tax or legal advice and nothing either stated or implied here should be inferred as providing such advice. The information is provided for educational purposes only.