How Can my Life Insurance Policy Help Pay for Long Term Care?
It surprises most seniors to learn that their life insurance policy is considered an asset when they are trying to “spend down” to qualify for Medicaid.
Though life insurance is meant to be spent after death or to be left to those we love, governmental organizations considers any policy worth more than $2,000 to be an unqualified asset that must be liquidated or counted against the individual when considering Medicaid and other financial assistance.
Some seniors end up letting their policy lapse or surrendering them for their current cash value, but there is a little known third option that often solves two problems at once for someone who needs help financing their long term senior care. It’s called the Long-Term Care Benefit Plan.
How Does the Long-Term Care Benefit Plan Work?
The Long-Term Care Benefit Plan takes your in-force life insurance policy and transforms it into a pre-funded financial account that will pay-out a dedicated monthly benefit to help pay for the policy holder’s long term care needs. However, unlike their insurance policy, a long-term care benefit plan account is a Medicaid qualified asset because the conversion process moves the ownership from the original policyholder to a named benefits administrator.
Who Owns or Manages a Long-Term Care Benefit Plan?
The benefits administrator is responsible for making the payments to the person’s in-home care, nursing home, assisted living facility, hospice care, or other long term care service. It is important to note that the Long-Term Care Benefit Plan disbursements can only be used to pay for long-term care and no other need.
What are the Advantages and Disadvantages of the Long-Term Care Benefit Plan?
Here are the advantages of the Long-Term Care Benefit Plan:
- there are no monthly premium payments
- any type of life insurance is convertible (whole, term, or universal)
- disbursement amounts are adjustable by length of payments (You would get double the monthly disbursement over 12 months than you would get over 24 months.)
- monthly disbursements don’t count against Medicaid coverage
- all dollars are “private pay”, and the owner still gets to maintain a special fund set aside for funeral expenses.
Long-Term Care Benefit Plans may seem like it would be a great option for anyone needing to pay down their assets, but that isn’t always the case. In the case of smaller policies for $10,000 or less, a person is normally better off keeping the policy or exchanging it for their cash value. On the other end of the spectrum, if you have a policy with a large cash value built in, you would normally be better off taking the cash value rather than converting.