Understand Life Insurance Needs For Elderly Relatives

As parents or other relatives advance in age, the cost of health care, nursing homes, and other services can spiral out of control. Does it make sense for older people to pay huge monthly life insurance premiums on top of the other bills they face?

The first questions you should ask if you know someone in this position are: Do they need the policy? Should the benefit stay intact for your relative, or any other beneficiary? Or are those premium dollars better spent elsewhere.

Let's say you keep the policy. If cash flow allows, you and other heirs may be able to put the insurance payout to good use. But other strategies might work better.

For example, you could end the insurance policy. Think $800 a month is a lot of money to spend on an insurance policy? That's what the insurance company wants you to think. They're betting you might let the policy lapse. Many holders, perceiving that they already received their value, will do that, or cash it out for what may be a modest cash value.

Depending on the policy, you also may be able to go direct to the insurer for a so-called accelerated benefit – if the insured has a life expectancy of 12 months or less. Ostensibly, the insurer recognizes you might need the money up front for medical expenses, etc. But it also realizes it will have to make a death payout soon, so a paid-sooner-but-diminished death benefit might make sense for it too. It can be a win-win – but look at the numbers carefully.

Another option would be to sell the policy with a life settlement. Life settlements let you sell the policy to an investor, either directly or through a broker. The investor gets the promise of an eventual death benefit, but pays the premium and absorbs any changes in cash value for variable policies. You get cash now, and get out from under the premium.

Roy Shellhammer of RTG Consultants, a Florida life settlement adviser and broker, says life settlements aren't always the answer, but they "provide another option," Shellhammer says. And as far as what you'll get, he'll tell you: "Every situation is different." And indeed it is - life settlement investors use a complex formula driven by age and health to determine what you might realize.

You can go to a broker like Shellhammer to learn the alternatives and get started. Elder-law attorney and elderlawanswer.com founder Harry Margolis says you should never take the first offer you see.

"Life settlements depend on a lot of factors," he says. For any proposal you get, there might be a better one out there."

– By Ed Coury, senior editor and Midwest bureau chief for the Wall Street Journal Radio Network, Dow Jones & Co., and a reporter for WWJ Newsradio 950. 

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