Lawmakers from several states are encouraging elderly people to use their life insurance to help pay for their Long Term Care through viatical settlements.
Currently, life insurance in an amount over $1500 of death benefit had to be cashed in prior to qualifying for Medicaid. The money received from cash value could be used like any other funds, spent for care, repairs on the house for an “at home” spouse, etc. Typically these were small $5000 life policies with negligible cash value. A term life policy with no cash value was simply dropped at time of Medicaid eligibility.
A viatical settlement, sometimes called a life settlement is when a life insurance policy is sold to an investor. This purchaser pays the premiums due and collects the insurance proceeds at death. If the insurred individual needs LTC services, it follows that death might not be too many years off thus creating a potential profit for the purchaser of the policy.
Even a term life policy with no cash value can be of value if death is not too far off. This gives value where dropping or cancelling the policy gives nothing back to the insurred. Typically a life insurance pllicy needs to be $50,000 or larger to interest any potential purchaser.
With the new regulations being proposed to encourage and regulate this market, the proceeds of life policy sale are placed into an irrevocable bank account and can only be used for the payment of the insurred’s LTC services. This helps the state reduce Medicaid expenses when the person needing LTC can pay longer out of pocket rather than accessing Medicaid sooner.
It also allows the person receiving care to pay for the care he/she wants, in the setting of choice, versus the often required nursing home placement on Medicaid. Thus there is value for all three parties, the purchaser, the insurred, and Medicaid. If the person receiving care is thus able to remain at home or in an assisted living facility longer, those care providers benefit as well.
States are starting to enc ourage and regulate this business as stated in a recent article in the Wall Street Journal. People with life insurance policies above $50,000 may not be aware of this strategy. By allowing them to use an asset they may not know they have, professionals can prolong the care they desire, in the setting they want, for the good of all.
For more information on life settlements, contact Romeo Raabe, TheLongTermCareGuy.com at 920 884-3030 or at 800 219-9203