If one of your elderly clients was about to enter a nursing home, probably the last piece of advice you’d give them would be to surrender their life insurance. Yet, as many of you know, the Medicaid eligibility rules of many states require them to do just that — surrender their policies just before the time they would most likely pay off.
The big winner under this rule is not the insured or the state, but rather the insurance companies that will not have to pay a death claim. To avoid this absurd result, a number of states (Florida, Kentucky, Louisiana, Maine, Texas) have considered or are considering Medicaid life settlements.
Although the laws differ in the details, here’s a brief summary of how the proposals work. Rather than surrendering a policy, an insured who is attempting to become eligible for Medicaid may enter into a life settlement and designate the proceeds to be used for his or her long-term care. As an incentive to enter into the transaction, the insured can designate a beneficiary for the lesser of $5,000 or 5 percent of the face amount. In addition, any unused settlement proceeds would also go to the insured’s beneficiary.
These proposals create a win-win situation. The states would get some relief from Medicaid long-term care outlays, and the insureds’ beneficiaries would receive some remaining death benefit. At a time when many states are hurting financially, these laws would offer some badly needed help. This idea is just another example of how life settlements are good for consumers.
For most of our clients, the thought of a life settlement at the time they need long-term care should be a last resort. It could be, however, one more opportunity to find money at a time when it is really needed.