CSA’s play an important role in the long term care cycle for many families across the United States.  Vital to serving families’ needs is being up to date on methods to pay for long term care services.  A big struggle for families is the fact that they don’t know what they don’t know until they all of a sudden find themselves in a crisis and have to figure out how the long term care system works in this country with the clock ticking. The two biggest decisions they have to make are directly related: what is the best form of care/setting and how to pay for it.  Most people are familiar with the traditional forms of long term care funding such as long term care insurance or Medicare and Medicaid; but what about non-traditional funding methods?

Did you know that any form of life insurance policy can be used to pay for Long Term Care?  Instead of allowing a policy to lapse or be surrendered; the owner of the policy can convert the policy into a Long Term Care Benefit Plan.

What is a Long Term Care Benefit Plan?

What does converting a policy mean?  It means the policy is sold for a percentage of the death benefit (the range can be between 20%-60%) and the funds are placed in an irrevocable, FDIC-insured Benefit Account that is professionally administered to make monthly, tax-free payments directly to any form of long term care that the account holder selects. This option extends the time a person would remain private pay and delays their entry onto Medicaid.  It is a unique Medicaid qualified financial option for seniors because all health conditions are accepted, and 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 have the 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.

The Benefit is administered specifically to be a Medicaid qualified spend-down of the asset proceeds by protecting the funds in an irrevocable bank account which can only be used to pay for long term care services. The Long Term Care Benefit Plan is a regulated and Medicaid qualified and VA qualified financial vehicle to help cover the costs of long term care.

Elder law attorneys, licensed insurance agents, and financial advisors have started to embrace this alternative to the lapse or surrender of a life insurance policy as a means to help their clients cover the costs of long term care services.  State governments have started taking action to encourage this as a means to save their Medicaid budgets money while helping seniors in their states access more options for long term care services.  This market development stems from one simple dynamic: Millions of seniors across the country needlessly abandon their life insurance policies as they begin planning for long-term care.

What do families really want: Public or Private Pay?

For many seniors, they either cannot afford to pay the premiums or they plan to lapse or surrender their policies to qualify for Medicaid. What they don’t realize is that they have the legal right to convert their policies into a Long Term Care Benefit Plan. Converting a policy allows the senior to remain private pay — meaning they are not reliant on public assistance and can choose the form of long-term care that they want: home care, assisted living and skilled nursing or memory care.

The vast majority of long term care is paid for by Medicaid.  To qualify, the applicant must meet asset and income limits that would put them below the poverty line.  A standard practice is to “spend-down” assets to meet these limits.  For owners of a life insurance policy, they will often lapse or surrender their policy so that it will not either count against them as an asset, or expose their heirs to asset recover action by the state to claw back the death benefit.  Instead, the owner of the policy can convert the policy’s death benefit into a “living benefit” that will allow them to remain private pay and choose the form of care that they want.

The Long Term Care Benefit Plan is a tangible asset to pay for long-term care created by selling a life insurance policy for its market value — it is not a loan, annuity, or a long-term care insurance policy.  The value of the conversion is based solely on the death benefit; meaning the senior will receive a maximum amount of value toward their Long Term Care Benefit Plan.  A policy owner is legally authorized to enroll in the Benefit Plan and this immediately enables them to direct monthly payments to the coverage of their housing and long-term care costs and they are no longer responsible for premium payments once they have enrolled.

Converting a life insurance policy into a Long Term Care Benefit Plan provides multiple layers of consumer protections:

  • The transfer of ownership of life insurance policies conforms to the rigorous regulatory standards that govern life settlements in each state.
  • The irrevocable, FDIC insured Benefit Account is held by a nationally chartered bank & trust company and must conform to federal and state banking regulations.
  • Because the account is irrevocable and can only be spent on long term care services, the Benefit Plan is administered as a Medicaid qualified spend-down.

At a time when seniors and their families are struggling with how to afford the high costs of senior care, and state budgets are looking for ways to save money, converting a life insurance policy to pay for long term care instead of abandoning it for nothing in return makes much more sense.

Highlights of the Long Term Care Benefit Plan:

  • Specifically for people that have an immediate need for Senior Care of any form: Homecare, Assisted Living, Nursing Home, Memory Care, Hospice (usually between now and within 90 days)
  • Works for any type of life insurance policy with a death benefit of $50,000 and greater (Term, Universal, Whole and Group life policies all qualify).
  • Easy underwriting requirement (review medical records from last 2 years and phone interview to confirm need for care and type of care to be funded with Benefit Account).
  • The entire proceeds from sale of the policy will go into an irrevocable, FDIC insured bank & trust account
    • The account is irrevocable to protect the money for the account holder
    • The account is adjustable and the monthly amount can change to meet changing care needs
    • The account is a Medicaid qualified spend-down so once the account is spent-down the account holder can immediately switch to Medicaid to pay for their care
    • The account is a VA Aide and Attendance qualified benefit and spend-down
  • The Account preserves a funeral benefit for the family or it will pay the entire balance to the family if the account holder dies before the account has been spent-down.
  • The Account pays a monthly benefit directly to the care provider of choice
    • Amount and provider can be changed with 30 day notice
    • Additional amount can be drawn for one-time special need circumstances
  • Fast and easy process to apply and enroll in a Long Term Care Benefit Plan
    • Average time to enroll and start receiving first benefit payments is 60-90 days
    • no costs
    • no obligations
    • no more premiums

The pros and cons of conversion

On the surface, it seems like life insurance policy conversion is a no-brainer. But, like everything, the method has its advantages and disadvantages:

 Advantages:

  • There are no monthly premium payments.
  • You can convert any type of life insurance plan: whole, term, group 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.
  • These monthly payouts would not count against an individual seeking to qualify for Medicaid or VA Benefit 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.
  • The Benefit Account is tax-advantaged and the funds spent on long term care are tax-free.

Disadvantages:

  • Anyone wishing to apply for a long term benefit plan must have an immediate need for some form of long term care. This is because monthly payments are made directly to a long-term care provider, not the previous holder of the life insurance policy.
  • Funds in the Benefit Account can only be used for long term care expenses.
  • When a policy owner enrolls in a Long Term Care Benefit Plan they are selling their life insurance policy for an amount less than the death benefit that will be deposited into their Benefit Account. When they pass away they are no longer the owner of the life insurance policy and the full death benefit will be paid out to a third party that now owns the policy.
  • It’s not ideal for everyone. Individuals with smaller policies (Anything with a death benefit under $50,000) 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.
  • It is also important to note that a long term care benefit plan is not the same as a long term care insurance plan.

Real World Examples

Case Study 1

The daughter had been researching Assisted Living communities for her mother. They had also been looking for financial assistance because the monthly costs were more than they could afford. Her mother owned a life insurance policy and they had contacted the insurance company about accessing the accelerated death benefit. She was young and afflicted with a rare, degenerative condition and could no longer care for herself; but the insurance company denied their claim. The Assisted Living Community told them that they could convert the policy into a Long term Care Benefit Plan instead. They moved forward quickly to convert the policy so that the monthly payments could start right away and they moved their mother into the community so that she could immediately start receiving the care and support she needed.

–          Gender/ Age Female / 55
–          Policy Size $200,000
–          Policy Conversion $119,000
–          Monthly Benefit $5,600
–          Benefit Duration 20 months
–          Funeral Benefit $7,000

Case Study 2

A daughter was caring for her father but the turn in the economy had hurt his investments and her own family’s finances. As his condition worsened they were unable to keep up with the costs. He owned a term life policy that they decided would be better used to help pay for the costs of homecare for her father. They found out more about how converting the policy would work by going online. They then converted it into a Long Term Care Benefit that allowed the family to recover some of their out of pocket expenses they spent on his care, and then set up a monthly benefit payment to cover 24 hour in-home skilled nursing care for the remainder of his life.

–          Gender/ Age Male / 68
–          Policy Size $250,000
-Policy Conversion $150,000
–          Monthly Benefit $10,000
–          Benefit Duration 15 months
–          Funeral Benefit $5,000

Case Study 3

The daughter was concerned that they could no longer afford paying for her mother’s care with her own finances and although her mother was young, she was very ill and could no longer care for herself. Her brother was stationed in Afghanistan and the responsibility to care for her mother and make these decisions was hers. She learned about Life Care Funding from the Assisted Living community they were looking at and reached out to learn more about converting her mother’s life insurance policy into a Long Term Care Benefit to start making monthly payments and relieve her of the financial responsibility. They made the decision that the Long Term Care Benefit was more important to help address their immediate need to finance her mother’s care, than keeping the policy to collect a death benefit in the future. Paying for her mother’s care out of pocket would be too difficult so they converted the policy and the monthly Benefit payments took over from that point forward.

–          Gender/ Age Female / 57
–          Policy Size $150,000
–          Policy Conversion $59,150
–          Monthly Benefit $2,100
–          Benefit Duration 26 months
–          Funeral Benefit $5,000

 

Conclusion

We have reached the point that we can no longer ignore the realities of an ever growing population that will require long term care, and the diminishing resources to pay for it.  People need to arm themselves with information about their options to fund long term care if they are going to maintain dignity and quality in their lives.  Government programs such as Medicare and Medicaid will become more difficult to access and the amount of coverage for long term care will continue to be reduced.  Consumers want to be private pay and choose the form and place of care that they want.  Information and access to resources is the primary value that a CSA can bring to the equation.  People want to remain financially independent and in control of their care decisions for as long as possible– sparing their families financial hardships and preserving their own dignity.