Protect your military family today. Call: phone icon1-800-522-5221
Get a Quote

Long-Term Care Settlement Option

A Flexible Option to Face Life's Uncertainties

What Is Included in the Long-Term Care Settlement Option?

  • The option for the policyholder to convert the death benefit on an eligible insured life—normally payable only upon the death of the insured—into regular periodic payments prior to death, specifically to defray the cost of nursing home, custodial or home healthcare for the insured
  • Beneficiaries continue to receive AAFMAA Survivor Assistance Services at the time of the Member’s death, even if they elected the Long-Term Care Settlement Option.. Plus, AAFMAA Membership continues during the payout period

Who Is Eligible for the Long-Term Care Settlement Option?

Additional Requirements

  • Any insured person, age 60 or older, who has been covered by an AAFMAA Value-Added Whole Life, ANNUITYLife, or Wealth Builder Life Insurance policy for two or more years and has been confined to a long-term care nursing facility, or who has required continuous home nursing care for the preceding four months or more.
    • Medical certification of need required for continued long-term care during application process
    • An annual recertification is necessary to ensure compliance with IRS guidelines
    • In cases where the insured is not the owner of the plan, it is the owner who must apply for the Long-Term Care Settlement Option on behalf of the insured
    • The insured must require and be receiving long-term care
    • Attending physician certification required

Using Life Insurance to Pay for Long-Term Care

Financing long-term healthcare is a widely recognized and growing problem for aging military servicemembers and Veterans. In most cases, an individual or their family must pay for long-term care out of pocket—a cost many may not be able to afford.

Fortunately, AAFMAA’s whole life insurance policies provide financial support to cover long-term care expenses through an accelerated death benefit.

What is an accelerated death benefit?

An accelerated death benefit is a life insurance provision that allows the insured to receive an early payout while they are still living. This benefit is commonly used to cover expenses related to terminal illness or disabling conditions that impact quality of life and/or life expectancy.

Learn more about how to activate the Long-Term Care Settlement Option to help cover the costs of long-term care. Call to speak with an AAFMAA Policy Services representative.

Common Questions

The standard option for disbursement of the Long-Term Care Settlement Option benefit is monthly, for a fixed period of 50 months. Any amount of coverage that generates payments up to the current annual IRS maximum that can be received tax-free may be converted.

The monthly payment is the amount of the approved death benefit as of the date the application is accepted (less any outstanding loan), divided by 50 months. An administrative fee will be deducted from the monthly payment. Payments may be made to the owner( the insured), deposited to a bank account or paid directly to a long-term care facility as designated by the owner of the plan.

By electing to apply the accelerated death benefit to periodic payments before death, the insurance value is frozen at the amount of coverage in effect as of the date the Long-Term Care Settlement Option application is approved by AAFMAA. However, if the policy is selected for conversion to the Long-Term Care Settlement Option, and exceeds the IRS tax-free maximum, the policy will be amended as necessary on an individual basis. Any excess insurance coverage above the amount elected for the Long-Term Care Settlement Option will remain in effect with an adjusted premium. All other previous policy provisions and beneficiary(-ies) will remain unchanged. 

Once the Long-Term Care Settlement Option is elected, and all payments are made for the fixed period, there will be no residual funds from the policy portion that pass to a beneficiary. However, should the insured die before the end of the monthly payout period, the remaining death benefit will be paid to the designated beneficiary in the form selected or authorized by the owner. If no selection is made, the default will be lump sum payment. If the whole life insurance  policy contains a designated irrevocable beneficiary, converting to the Long-Term Care Settlement Option will require notarized approval by the designated irrevocable beneficiary.

Once an application for the Long-Term Care Settlement Option has been approved, all subsequent premiums for those amounts converted to the Long-Term Care Settlement Option are terminated by AAFMAA. For any amounts not converted, there will continue to be premiums charged or remaining amounts may be converted to Reduced Paid Up or any of the many alternatives available to any policy.

The Long-Term Care Settlement Option is considered a qualified accelerated death benefit (living benefit) under IRS regulations. As such, the net amount of the death benefit is excluded from gross income and, as long as the total annual payments do not exceed IRS guidelines, is not generally subject to Federal or State income tax. 

AAFMAA will provide an IRS Form 1099-LTC each year summarizing the distribution. If an irrevocable trust is to be the plan owner, a tax advisor should be consulted prior to exercising this option.

The application for and subsequent approval of the Long-Term Care Settlement Option will be considered irrevocable except that an owner may elect to discontinue the option and reinstate insurance benefits as a Reduced Paid Up benefit plan ONLY if the annual recertification fails to comply with IRS code. Under this condition, the death benefit would be re-established at a level supported by the remaining value of the Long-Term Care Settlement Option at the time it is discontinued. However, once discontinued, there will be no option to reinstate a subsequent Long-Term Care Settlement Option election of that insurance policy.