New Legislation Supports Use of Life Policies to Pay for Long Term Care
Cuts to Medicare and Medicaid funding specifically for long term care services coupled with the growing Boomer and senior population of this country are driving the need to fund more and more long term care costs through private pay dollars. Unfortunately, there is a lack of consumer awareness about how Long Term Care funding works and the facts about private market funding options. There is more than $20 trillion of in-force life insurance in the United States (NAIC, 2010) but insurance carriers are resistant to inform policy owners about their legal rights of ownership, and a majority of these uniformed seniors allow their policies to lapse or surrender without ever being aware of other options to use life insurance to pay for long term care services.
Millions more seniors own life insurance than long term care insurance and for many their policy is an unneeded, undervalued, and illiquid asset. Senior policy owners and their family prefer using the life insurance asset in a productive way to help solve their financial and healthcare challenge instead of lapsing or surrendering it– and most would prefer to stay off of Medicaid if given the financial option. With mandated access to information and resources, those most in need of financial solutions can make an informed decision about what is the more important priority for them— the value of a death benefit and keeping the policy in force, or the value of a living benefit and converting the policy to its present day value to pay for long term care.
By converting an existing life insurance policy to a long term care Long Term Care Benefit plan, the owner is spending down the asset towards their cost of care in a Medicaid compliant manner while still preserving a portion of the death benefit. If the insured passes away while spending down via their Long Term Care Benefit enrollment, any remaining death benefit would pay out to the designated beneficiary without being subject to Medicaid recovery. A life insurance policy is legally recognized as an asset of the policy owner and it counts against them when qualifying for Medicaid. If a policy has anything more than a minimal amount of cash value (usually in the range of $2,000) it must be liquidated and that money spent towards cost of care before the owner will qualify for Medicaid. All Medicaid applications specifically ask if the applicant owns life insurance and full policy details. Failure to disclose and comply is fraud.
Federal and state budgets can only accommodate so much, and when dollars are shrinking while populations are growing it becomes pretty simple math to see that something has to give. If history is our guide, then it will be the individual who ends up giving the most. For people to come even close to meeting their expectations for a high level of senior housing and care it will require a firm grasp of the options available and a plan to take action before its too late. Now is the time to prepare by understanding the funding options that are available to help cover the costs long term care as the responsibility shifts more and more to the individual.
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