Elder law attorneys, advisors who sell long-term care insurance, and organizations involved in elder care see the same unfortunate circumstances with their senior clients every day.
Among your clients needing long-term care, you've probably seen two scenarios play out many times:
In the first one, your client already has long-term care insurance, so they're able to pay for what they need fairly easily. The emotional and financial burden on both them and their families are greatly reduced.
In the second one, your client has no long-term care insurance and possibly has no funds set aside to cover the cost of care. If they're trying to qualify for Medicaid to help foot some of the bill, then they're likely trying to spend down their assets - and a life insurance policy, until recently, has been categorized as an unqualified asset when it comes to Medicaid.
This has meant that policyholders have generally had no other option than to abandon their life insurance policies. It's a far from ideal situation.
However, there is now another option for these clients who are in need of long-term care, have active life insurance policies, and want to qualify for Medicaid. It involves selling their life insurance policy on the secondary market. Some advisors refer to the process as a long-term care life settlement and others call it a Medicaid - life settlement. It's a life settlement where the proceeds from the sale are then transferred to an irrevocable, FDIC-insured bank account that makes payments directly to your client's long-term care provider.
The first criteria for qualifying for this program is that the policyholder must need some form of long-term care within the next 90 days. This can be home healthcare, assisted living, memory care, hospice care, or nursing home care.
As for the types of life insurance policies that qualify, clients with Term, Universal Life, Whole Life, or Group Life insurance policies are eligible to apply.
Policies can have a face value of anywhere from $50,000 to $1 million, and there are no age limits for the named insured. Policies issued in all states and by all carriers are eligible, and the turnaround time is quick. Underwriting can be completed and payments can start being made within 30-45 days.
How does selling a life insurance policy work?
Selling a life insurance policy, or a life settlement, is conducted through you, your client's financial advisor, as well as a life settlement broker.
A life settlement broker - a firm like Ashar Group - represents your client and you. A life settlement provider represents investors who want to purchase the policy. It's very important to understand the difference and how it affect your client. You can read more about what brokers and providers do during the transaction process here.
The broker shops your policy around to several well-vetted and licensed institutional investors, to create a competitive bidding environment that ensures your client receives the best possible offer. Typically, when the policy is sold, the seller receives payment as a lump sum; in this case, of course, the proceeds are held in a FDIC-insured bank account to make payments to the long-term care providers.
Benefits of this option
Besides the obvious major benefit of not having to relinquish a life insurance policy for a mere fraction of what has been paid into it, there are many other advantageous points to consider.
For one, the account in which the proceeds are held is tax-free and counts as a qualified Medicaid spend down.
If the family desires, a partial lump sum payment can be made as retroactive reimbursement for long-term care expenses, or to cover any unpaid balances to healthcare providers.
Final expenses are covered by an amount set aside for the purpose, and if any portion of the funds is not used, they're paid to the named beneficiaries on the policy.
For clients who are uninsurable and unable to qualify for long-term care insurance, this option can be a highly desirable one, reducing financial stress and making the difficult transition to long-term care somewhat easier on everyone.
If your client is ready to explore this option, contact us at Ashar Group today.