For many policy owners, life insurance is an easily abandoned illiquid asset. The vast majority of in-force life insurance policies will never pay a death benefit because they either expire, lapse, or are surrendered for cash value. The New York law, as well as other legislative and market activities, point to the growing realization that life insurance policies are an asset well-suited to help pay for long term care.
Too few seniors realize that their policy could be used for purposes other than a death benefit, but the word is rapidly spreading among policy owners and lawmakers. Another recent example of legislative action in support of using life insurance as a tool to help pay for long term care costs is last month’s passage of NCOIL’s Life Insurance Consumer Disclosure Model Law. (Versions of the law have already passed or are under consideration in Oregon, Washington, Maine, California, Wisconsin, and Kentucky.)
“It is imperative that policyholders understand that they have alternatives to merely lapsing or surrendering their policy,” said NCOIL President Rob Damron upon the model law’s unanimous passage. “The model would require a clear notice to consumers, listing eight available options, including accelerated death benefits, conversion to long term care, and the possibility of a life settlement.”
In the law, life insurance companies are legally required to inform policy owners older than 60, or if they have a terminal or chronic condition, that they have eight alternative options to consider before lapsing or surrendering a policy – and one of them is converting a life insurance policy into a long term care benefit plan.
The long term care conversion option opens up the ability to use a life insurance policy for long term care to an even wider population than the New York accelerated death benefit law. There is no minimum requirement of three months’ residence in a long term care facility, and unlike long term care insurance, there are no waiting periods to receive benefit payments. Policy owners unable or unwilling to keep their life insurance in force can convert their policy to pay for the costs of assisted living and home health care, as well as for nursing home care.