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The baby boom generation in the U.S. continues to grow at an exceptional rate. The youngest boomers, those born in 1964, will reach age 65 in 2029. That year the U.S. will have some 71.4 million people age 65 or older, which will account for about 20 percent of the population, according to the Population Reference Bureau. [1] This unprecedented growth is already putting great stress on the delivery of healthcare and, especially, on the people who need help paying for long term care. Unfortunately, the cost of long term care insurance has increased dramatically and become unaffordable for many seniors. Paying for long term care has become a crisis for seniors across America. Fortunately, the Life Settlement option may be the answer.
Government Not the Answer for Paying for Long Term Care
Lacking an affordable long term care insurance policy, seniors often turn to Medicare and Medicaid in hopes of finding a solution.
Unfortunately, Medicare is limited when it comes to paying for long term care services. They must be delivered at Medicare-certified skilled nursing facilities, and for no longer than 100 days. Medicare pays nothing for assisted living or for continuing care retirement community living. [2]
Medicaid, on the other hand, can provide healthcare over long periods of time, but qualifying for Medicaid requires seniors to meet strict eligibility requirements. Considering that Medicaid was developed to provide care for the poorest Americans, many seniors find they have too much income to qualify. For instance, a senior drawing social security and money from a pension or 401-K often finds she or he is ineligible for Medicaid.
Furthermore, the government looks at your assets—including your home, real property, automobile, stocks, savings accounts, life insurance and other resources. Their value alone may make you ineligible, forcing you to liquidate your assets to meet the low income requirements. But even with the indignity of having to meet a near-poverty level, Medicaid looks back five years to assure you haven’t sold assets at below market value in an effort to reduce your “on paper” estate value. It also considers any assets put into a trust as available to you for purposes of determining eligibility.
Enter NAIC with Answers and the Life Settlement Solution
The National Association of Insurance Commissioners (NAIC) is a non-profit organization that oversees and sets standards for the insurance industry. In July 2017, NAIC recommended that seniors look at several private market methods for paying for long term care. Interestingly, of the several options NAIC identified, Life Settlements is the only solution that requires no out of pocket payment. NAIC’s published report [4] advises that a Life Settlement “…is one option seniors might use to generate resources to pay for their long term care needs.”
A Life Settlement enables a qualified life insurance policy owner to sell his or her insurance policy to a private market buyer. Proceeds from that sale substantially exceed the cash value of the policy, giving the policy owner cash that can be used for paying for long term care—which may include assisted living, a nursing home, home care or another form of care. If you choose, proceeds from the sale can be administered by a financial professional who makes payments directly to the care-giving organization as they come due. When the insured passes, the face value of the policy is paid to its buyer.
While term life insurance does not accrue cash value, the amount paid to the policy owner is calculated on a percentage of the face value of the policy. Therefore, convertible term life insurance can be used in a Life Settlement just as easily as any other type of life insurance.
The NAIC has confidence in Life Settlements because the states have increasingly standardized their disclosure requirements and regulations surrounding the process. In fact, many states have passed laws that require insurance companies to tell consumers what options they have with their life insurance. In the past, the only options disclosed were lapsing, canceling, or surrendering a policy. Today, insurance companies in many states are obligated to inform you of the option for Life Settlements.
How Life Settlement Works
The process is straightforward, and you can consider either of two approaches in selling your life policy to pay for long term care.
Conventional Life Settlement
Qualifying for a Life Settlement works best for individuals who are 65 or older and have moderate health impairments that have worsened since buying the policy. However, if you have more substantial health issues, you may qualify at a younger age.
To arrive at a cash amount a buyer will pay for your policy, that buyer needs certain information. Because the buyer takes over your policy and pays the premiums, the buyer needs to estimate how much in premiums will come due during your remaining lifetime. This, in turn, requires an estimate of your life expectancy. To obtain that, medical records including doctor’s notes, lab results, hospital records and the results of other diagnostic procedures are used to compute an actuarial model. From that data and details on your specific life insurance policy, the buyer pays a dollar amount you can use to pay for the needed long term care—with none of the restrictions government programs impose.
Medicaid Life Settlement
Despite its name, the Medicaid Life Settlement approach to Life Settlement does not use Medicaid and does not require you to qualify for Medicaid. Further, it offers several major advantages.
The qualifying process is much the same as in a Conventional Life Settlement, discussed above. However, the proceeds from the sale of your policy are converted into an irrevocable FDIC-insured “Long Term Care Benefit Plan.” This account is managed by a third party, and paid, tax free, and enables paying for long term care directly to the provider you have chosen. The account is approved by Medicaid as a “qualified spend-down,” which enables you to transfer to pure Medicaid care if and when all the funds from the sale of your policy are spent. [5]
Your Life Insurance Policy Is Your Personal Property
Don’t let it lapse because you think you no longer need it. Don’t cancel it because it’s too expensive. Don’t let the premiums you’ve paid over many years go to waste. Contact us to see if you qualify for a Life Settlement.
We will help you with a free, no-obligation qualification appraisal. If you qualify, we’ll connect you with a direct buyer and will assist with the paperwork. Once you receive an offer to buy your policy, the decision to sell or keep the policy is entirely up to you. We’ve spoken with thousands of people for more than 10 years and we look forward to helping you.
Sources and Resources:
[1] http://www.prb.org/Publications/Articles/2002/JustHowManyBabyBoomersAreThere.aspx
[3] https://www.medicaid.gov/medicaid/eligibility/
[4] http://www.naic.org/documents/cmte_b_ltci_sg_related_private_market_options_ltc_serv.pdf