Can Long-Term Care Policies Be Cashed Out?
When considering long-term care (LTC) insurance, many individuals wonder if these policies can be cashed out for flexibility or unexpected needs. Here’s an overview of the different types of long-term care policies and their cash-out options:
Traditional Long-Term Care Insurance:
Most traditional LTC insurance policies do not offer the ability to cash out, as they are designed specifically to cover the costs of long-term care services, such as nursing homes or in-home care. These policies generally don’t accumulate a cash value, meaning there’s no financial benefit to withdrawing or surrendering the policy. However, Mutual of Omaha is one notable exception, offering a return of premium (ROP) option on some traditional LTC policies. This means if the policyholder passes away or does not use the full benefits, beneficiaries may receive a portion of the premiums back.
Hybrid Long-Term Care Insurance:
Hybrid LTC policies combine long-term care coverage with either life insurance or an annuity. These hybrid plans offer more flexibility, as they often accumulate cash value and can be cashed out or used in other ways. If you never need long-term care, your beneficiaries can receive a death benefit or access the policy’s cash value.
Long-Term Care Annuities:
Long-term care annuities are another option that can be cashed out. These annuities offer a mix of long-term care benefits and regular payouts, with the added benefit that if you don’t use the long-term care portion, the remaining annuity value can be accessed or passed to beneficiaries.
Contact us below for free help to learn your options on how to cash out your LTCI policy. You can also call us at (770)-755-1565.
6 Ways You Can Cash Out or Extract Value from a Long-Term Care Policy
1. Cash Surrender (If You Have a Refund of Premium Rider)
Key Stat: Some LTC policies return up to 80%–100% of premiums after a certain time.
If your policy includes a “refund of premium” rider and you cancel the policy, you may get a partial or full refund of the money you’ve paid in.
✔ Pros
- Recovers part of your investment
- No taxes if it’s a return of premium
✘ Cons
- You lose your LTC coverage
- Only available if your policy includes this feature
Who Needs It: Policyholders with a rider and no longer want or need coverage
Who Doesn’t: Those who still want LTC protection
Helpful Add-On: If you’re surrendering your policy, consider replacing it with a hybrid LTC annuity or life policy that offers cash value and flexible use.
2. Life Insurance with LTC Rider: Withdrawals or Loans from Cash Value
Key Stat: Permanent life insurance builds cash value over time, often accessible tax-free.
If your LTC policy is tied to a whole life or universal life policy, you can borrow against or withdraw from the cash value. This won’t cancel your LTC rider unless the policy lapses.
✔ Pros
- Keep LTC coverage active
- Access funds tax-free if structured as a policy loan
✘ Cons
- Reduces death benefit
- Interest accrues on loans
Who Needs It: People with hybrid LTC + life insurance policies
Who Doesn’t: Those with standalone LTC coverage or no cash value
Also Consider: Limited-pay whole life policies that fully fund premiums in 10–20 years and leave cash value accessible later.
3. 1035 Exchange Into a New Policy
Key Stat: A tax-free 1035 exchange allows you to move the policy value into a new contract.
If you have a cash value LTC policy or annuity, you may be able to exchange it for a new hybrid annuity or life policy with LTC benefits—without paying taxes on gains.
✔ Pros
- Avoids taxes on gains
- Can switch to better benefits or cheaper premiums
✘ Cons
- Limited to cash value policies
- Complex and requires expert help
Who Needs It: Anyone with underperforming policies who wants better terms or new features
Who Doesn’t: Those with no cash value or too old to qualify for new underwriting
Helpful Add-On: Consider fixed index annuities with LTC riders for higher growth potential and protected income.
4. Life Settlement (Selling a Hybrid Life and long-term care Policy)
Key Stat: Policyholders over 65 may sell their policy for 20%–30% of the death benefit.
If you no longer want or need your life + LTC policy, you can sell it in the secondary market for a lump sum. These are called life settlements.
✔ Pros
- Much higher payout than surrender value
- No medical bills needed to trigger payout
✘ Cons
- No more LTC or death benefit
- May be taxable
Who Needs It: Seniors who no longer need coverage or want a large lump sum
Who Doesn’t: People who still need LTC or death benefits
Also Consider: Use proceeds to buy a single-premium annuity for lifetime income.
5. Accelerated Benefit Riders (If Chronically Ill)
Key Stat: You may access up to 80%–90% of the policy’s death benefit while alive.
If your hybrid policy has an accelerated death benefit rider for LTC, you can trigger access to the death benefit early if you’re diagnosed with a qualifying chronic illness.
✔ Pros
- Receive funds without needing to cancel or die
- Often tax-free under IRS rules
✘ Cons
- Must meet strict medical criteria
- Reduces remaining death benefit
Who Needs It: Those currently facing long-term care needs
Who Doesn’t: Those in good health or not yet eligible
6. Annuity with Long-Term Care Rider
Key Stat: Certain fixed annuities will triple your income if you need LTC.
You can roll cash value from a life policy or old annuity into a long-term care annuity—a hybrid product that grows your savings and multiplies the benefit if you need care.
✔ Pros
- Guaranteed income
- Multiplies care benefits 2–3x
- No underwriting if using nonqualified funds
✘ Cons
- Ties up money
- May have waiting periods for care
Who Needs It: Pre-retirees or retirees seeking care protection and income
Who Doesn’t: Those needing immediate liquidity or income
Final Thoughts
If you have an old long-term care policy or hybrid policy, don’t assume you’re stuck. Whether you want to cancel, borrow, replace, or extract cash, there are ways to get value from it. Just know the type of policy you have determines your options.
Book a Call with The Annuity Expert to get a free, no-obligation comparison of your options—including 1035 exchanges, hybrid LTC annuities, life settlements, and more. We’ll help you make the most of your policy—without making a costly mistake.
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