Turning a life insurance policy, an annuity, or the house into care money

Before you sell anything

These options all convert a future asset into money now, and each has a cost: a smaller inheritance, taxes, fees, or an effect on Medicaid eligibility later. None of them is wrong. All of them deserve an hour with an elder law attorney or a fee-only financial planner before signing, because a move that solves this year can cause a Medicaid problem next year. We do not give financial advice; this is a map of the options.

Accelerated death benefit

Many life policies let the insured take part of the death benefit early if they are terminally or chronically ill, as the policy defines those terms. The New York Department of Financial Services describes this as a rider or feature of the policy. Call the insurer and ask whether the policy has it, what qualifies, and how much is available.

Life settlement

A life settlement sells the policy to a company that becomes the owner, pays the premiums, and collects the death benefit later. The seller gets a lump sum that is more than the cash surrender value but less than the death benefit. New York regulates life settlement providers and brokers. The state's consumer booklet notes that a broker must represent you and disclose their compensation, that proceeds may not be tax-free, and that creditors may reach the money. Get more than one offer, and ask a tax professional before you accept one.

Cashing in or surrendering

A permanent policy may have cash value you can borrow against or surrender. A term policy has none. Surrendering ends the coverage, so it is usually the last of these options, not the first.

Annuities

An annuity turns a lump sum into a stream of monthly payments. Some families use one to make the monthly budget predictable; some elder law attorneys use specific kinds in Medicaid planning for a married couple. The details are technical and the rules are strict. Do not buy an annuity from someone who also stands to gain from the sale without a second opinion.

The house

Selling, renting, or borrowing against a house is the biggest private decision most families make. A reverse mortgage has its own article here. If Medicaid may ever be needed, talk to an attorney before the house changes hands; in 2026 New York counts home equity above $1,130,000 for nursing home and home care Medicaid, and there are rules about who can keep living in it and what happens to it later.

Watch for

• Anyone who says a product will qualify a parent for Medicaid. Only a Medicaid application does that.
• Pressure to sign today. Ask about the cancellation or free-look period before you sign.
• Fees or commissions that are not written down.
• Advice from the person selling the product, only.