News & Events
How to Use a Life Insurance Policy to Pay for Long-Term Care
By: ANNE-MARIE BOTEK
Elder Law Associates Newsletter dated June 13, 2018
- Allowing a loved one to age in place. Mary (names have been changed) has been taking care of her husband, Bill, who has dementia, in their home. Lately, Bill's condition has deteriorated to the point where Mary can no longer look after him by herself. Together, Mary and Bill own a life insurance policy worth $20,500. Mary cannot continue to make the payments on this policy and considers letting it lapse. Instead, she ends up converting it into a long-term care benefit plan that pays $350 every month, for 15 months, enough money to hire a home caregiver to help her take care of Bill. She as also able to retain $1,028 in the account for future funeral expenses.
- Extending an assisted living stay. The Williams family wants to continue to pay for their mother to live in an assisted living community. However, they keep coming up just shy of being able to cover her monthly expenses. Ms. Williams has a life insurance policy worth $27,000, and her children look in to how much money their mother would receive if she surrendered the policy. They were disappointed to find that the plan would only translate into a few thousand dollars. After hearing about the long-term care benefit plan option, the Williams siblings decided to put their mother's policy through the conversion process. Doing so resulted in a monthly benefit of $975 a month for 12 months—enough to make up the shortfall in their mother's assisted living costs. Ms. William's also got to keep a funeral benefit of $1,357.
- There are no monthly premium payments
- You can convert any type of life insurance plan: whole, term or universal
- Monthly payout amounts are adjustable based on how many months a person wants to receive payments. (For instance, a person whose life insurance policy converts into $12,000 in total benefits could choose to receive 12 monthly payments of $1,000, or 24 monthly payments of $500)
- Monthly payouts do not count against an individual seeking to qualify for Medicaid coverage sometime in the near future. A long-term care benefit plan is recognized by Medicaid as an acceptable spend-down during the five year look-back period.
- A long-term care benefit plan is comprised of "private pay" dollars, which means that it can be used to pay for any kind of care—home care, nursing home, assisted living and hospice.
- A special fund is set aside for future funeral expenses
- Anyone wishing to apply for a long-term benefit plan must have an immediate need for some form of acceptable long-term care (see examples above). This is because monthly payments are made directly to a long-term care provider, not the previous holder of the life insurance policy.
- It's not ideal for everyone. Orestis says that individuals with smaller policies ($10,000 or less) are probably better off holding on to their plan, or giving it up it in exchange for the cash surrender value. Also, people who have a life insurance policy with a large cash value built into it (i.e. a $100,000 policy with a $90,000 cash value) are better off taking that cash value than converting it.
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