You've seen the ads on TV: an older couple who bought life insurance when their family was younger now has premiums they can't afford, for a benefit their family no longer needs. The ad encourages them to sell their policy, killing two birds with one stone, as it were: they receive much-needed cash in exchange for their policy, and they're no longer burdened with the premiums.
It sounds great, but it may not be the best option for most seniors. It can be difficult to determine whether you're being offered a fair price in exchange for your policy. Even if you are, that money isn't all yours. There are likely commissions involved, which can consume up to 30% of what is called your "life settlement." In addition, you will probably have to pay income taxes on a life settlement, whereas your beneficiaries would probably receive the death benefit of your policy tax-free. What's more, if you currently depend on public assistance, receiving a life settlement from your life insurance policy could jeopardize your eligibility.
That doesn't mean you're out of options, however. You can use your life insurance policy to create a long-term care (LTC) benefit account, which can help you pay for senior care and housing.
Here are some facts: Over 10,000 Baby Boomers are turning 65 every day, and more than 70% of them will need long-term care. For over 40% of Boomers, that care will take place in a nursing home, and nursing home care is incredibly expensive; a private room in a nursing home currently averages around $100,000 per year, and costs are only rising. The majority of people entering a nursing home will exhaust their entire savings in less than one year of care.
Counting on government help to pay for your care? Maybe, but it may not come in the form you expect. A survey indicates that 60% of people believe that Medicare pays for assisted living or skilled nursing care for an extended period; it does not. Medicaid will, but not until you've exhausted almost all of your own resources.
A properly-executed conversion to an LTC benefit account complies with Michigan life insurance regulations, and preserves a funeral benefit for your family. Any remaining balance would be paid to your family or your designated beneficiary.
Where does your life insurance come in? Well, rather than letting your policy lapse because you can't afford to pay for it, or liquidating it to pay for nursing home care, you can convert your benefit into an account that pays for the care you will likely need.
Here's how it works: the value of your policy is deposited into in irrevocable benefit account that is FDIC insured. You designate a care provider, and automatic payments are made from the account directly to the provider. If the amount of your payment needs to change, it can be adjusted.
A properly-executed conversion to an LTC benefit account complies with Michigan life insurance regulations, and preserves a funeral benefit for your family. Any remaining balance in the account at the end of your life would be paid to your family or your designated beneficiary.
If the idea of an LTC benefit account appeals to you, you need to make sure that your policy, and the type of care you will likely need, will qualify. The good news is that most types of policy, including term, universal, whole life, and group life are eligible to be converted into an LTC benefit account, so long as the policy has a death benefit of $50,000 or more.
Even better news: these accounts can be used to pay for more than skilled nursing care, what we typically think of as "nursing home" care. LTC benefit accounts can pay for independent living or assisted living, which is handy in a so-called transitional care facility, where residents can "step up" from independent living to assisted living to skilled nursing, as needed. LTC benefit accounts can also be used for home healthcare, private duty home care, memory care for people with Alzheimer's or dementia, and certain related senior care services.
If your loved ones no longer rely on your life insurance policy for support, and you would like to get some benefit out of the policy into which you've paid so much, talk to your elder law attorney about the possibility of converting your policy into a long-term care benefit account.
You may also be interested in: