Why are life insurance policies abandoned when they can be converted to a long-term care benefit plan?
By Chris Orestis
Life Care Funding
Life insurance is an unqualified asset for Medicaid eligibility and billions worth of policies are regularly abandoned by uninformed seniors as they enter their "long-term care years." Converting a life insurance policy into a long-term care benefit plan is a Medicaid qualified spend down of the policy, and it extends the time a person remains "private pay" before going onto Medicaid.
NCOIL included this option as one of the mandated disclosure requirements in the Life Insurance Consumer Disclosure Model Law. States are under tremendous budget pressure to keep pace with exploding demand to cover long-term care needs with tax payer money, and they are quickly realizing the savings that can be found for their beleaguered budgets by delaying entry onto Medicaid through the use of Medicaid qualified life policy to LTC benefit conversions.
A private market policy conversion is not a long-term care insurance policy, annuity, any form of hybrid life/LTCi policies, or an accelerated death benefit — it is actually the secondary market exchange of a life insurance policy for a long-term care benefit plan at the time that care needs to be paid. This is a unique financial option for seniors because there are no wait periods, no care limitations, no costs to apply, no requirement to be terminally ill, and there are no premium payments. Policy owners use their legal right to convert an in-force life insurance policy to enroll in the benefit plan and are able to immediately direct payments to cover their senior housing and long-term care costs.
It is in the better interest of seniors and their family to convert a death benefit into a long-term care benefit and then apply the maximum private market value of the policy towards their health care needs. If a policy can be converted into the means to cover the costs of long-term care for an extended period, and keep the insured off of Medicaid that much longer, it is in their best interest and that of the state's tax payers.
State governments are in favor of life insurance policy conversions because it is a private sector solution that addresses the financial needs of the senior and helps stressed state budgets by extending the spend down period for a senior before they would go onto Medicaid.