Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted on Help Smart Phone and MEL Magazine.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Mar 19, 2020

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Long term care insurance cash value

A standard long term care insurance plan doesn’t accumulate cash value because the plan is not set up to do so. This type of coverage is purchased to help defray the cost of providing care for a person who is unable to perform basic functions of caring for themselves due to a physical or cognitive disability.

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Responding to concerns raised by policyholders about what happens to premiums paid if they don’t make a claim for benefits under the policy, some insurance companies have introduced a hybrid policy that offers a death benefit as well as coverage for long term care costs.

Annuities that can be used to provide long-term care coverage also exist.

Long Term Care Insurance Coverage

A claim on a long-term care policy is made when the policyholder needs help to perform two or more of the activities of daily living, which are:

  • Eating
  • Dressing
  • Bathing
  • Using the toilet
  • Getting in and out of bed or a chair, and
  • Being able to maintain continence

This coverage will also pay a benefit for the care of a person who has difficulty with his or her cognitive ability, such as a person with Alzheimer’s Disease.

This type of insurance coverage may have a waiting period before it starts to pay benefits. The longer the waiting period, the lower the premiums will be. During this time, the policyholder and his or her family will be responsible for paying for the full cost of care themselves. Once the waiting period has been served, the policy will pay a regular benefit for life.

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Hybrid Life and Long Term Care Policy

A new product offered by some insurance companies is a type of hybrid policy that combines whole life coverage with a long term care benefit. Some companies offer a single-premium policy, where the policyholder makes a single payment in any amount of his or her choice. The death benefit payable under the plan is equal to 2.5 times the amount of this premium payment.

Other insurers offering a combination of long term care and life insurance coverage allow policyholders to make monthly premium payments. If the policyholder needs long term care during his or her lifetime, he or she can draw on the cash value of the policy to pay for it. Any amount left over is paid out as a death benefit to the named beneficiaries when the policyholder passes away.

The benefits paid out under this option are tax-free in the hands of the recipient, since they are considered to be the same as the proceeds from a life insurance policy. The insurance company is only advancing funds that would be payable on the death of the policyholder anyway. Instead of the policyholder’s beneficiaries receiving the money outright, it can be used to benefit the policyholder in life and shield against other assets being used to pay for long-term care.

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Long Term Care Insurance and Annuity

Another option for people looking for long-term care protection and some cash value is to buy an annuity by putting down a lump sum for this purpose. The annuity increases in value over time, so long as the annuitant does not need long-term care. If he or she does become incapacitated and need assistance with the activities of daily living, the annuity will fund the cost of long-term care, up to three times the amount initially invested.

Some insurance companies offering this solution to policyholders who want to receive a monthly payment under the annuity provisions and still have coverage for long-term care is for the annuity to pay out at a standard level if the policyholder doesn’t need care. If the funds are needed for this purpose, they are paid out at a higher level to fund it. Under the provisions of the Pension Protection Act , all benefits paid for long-term care are tax-free if received after January 1, 2010.

Before making a decision about which plan is best, a consumer should carefully consider their needs. Consulting with a financial adviser and asking questions about long term care insurance and cash value is the first step in getting the right coverage for your individual situation. One of the new hybrid policy options can effectively deal with the issue of providing protection to pay for long-term care while ensuring that you are not losing the amount paid into the plan if no such care is needed.

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