Q. My husband is in poor health and we need to find a way to pay for care to keep him at home. He has a life insurance policy payable on death, but I heard that there may be ways to access  policy benefits during lifetime. Can you advise on this?

A. Sure. There are ways that a life insurance policy, which is ordinarily payable only upon death, might generate funds during life:

1) Take a Loan Against Cash Value: if your policy is a whole life policy, or otherwise has cash value, you should be able to borrow money against it and still maintain the policy in force. Ultimately, the outstanding loan amount will be subtracted from the later death benefit payment, but borrowing can be convenient way to raise needed funds now for any purpose;

2) Accelerated Death Benefit (“ADB”): many life insurance policies, even some term policies, will allow the insured to access a portion of policy benefits during life if he or she is terminally ill, has a life-threatening illness, needs extended long-term care services and/or is permanently confined to a nursing home. Usually the ADB benefit depends upon the insured having purchased a “rider” with that benefit at the time of policy purchase, but some carriers will offer that benefit even if the policy does not expressly so provide. Others will allow the purchase of an ADB rider even after the policy is in force;

3) Life Settlement: this option allows you to sell your life insurance policy to investors, usually at a steep discount against the policy death benefit. The investors then become the owners of the policy, continue to pay the premiums, and ultimately receive the policy death benefit at the time of your demise. This option is usually only available to policy owners over 65 years of age and  requires disclosing 5 years of medical records for review. This may be an especially good option if you are considering canceling the policy because the premium payments have become a financial burden or you no longer need it.  According to Brian May of Summit Life Equity, a company that arranges life settlements, it is best to use a firm that employs a competitive bidding process among investors to maximize the sale value of your policy.

4) Viatical Settlement: a viatical settlement is similar to a Life Settlement, but is only available  to insured’s who are terminally ill and have a life expectancy of less than two years. Like the Life Settlement, the viatical settlement pays the insured a percentage of the policy death benefit now, while taking over policy ownership and assuming responsibility for making future premium payments.  The viatical company then receives the policy death benefit upon the insured’s demise.

Accessing policy death benefits during lifetime must be carefully considered, especially if it involves a sale of the policy using the Life Settlement and/or Viatical Settlement approach.  Opting to sell your policy means that the policy death benefits will not be available to your family down the road. Also, converting your policy to cash may adversely affect eligibility for public benefits, such as Medi-Cal, and — at least with the Life Settlement approach — some of the proceeds may be taxable. It is best to seek advice from your insurance and financial advisors, or your attorney, before making the decision to sell your policy for immediate cash.