State lawmakers are urging elderly citizens to use life insurance as a way to pay for long-term care, reports The Wall Street Journal.
The strategy aims to provide seniors and their family members with financial resources to pay for immediate care needs through life settlements, a practice in which policyholders sell their life insurance policies at a discount in the secondary market and the buyer takes over premiums and collects the death benefit.
Proposed legislation is pending in at least eight states, including Texas, New York, California, Florida, Kentucky, Louisiana, Maine and New Jersey.
The states hope life settlements will stop seniors from dropping their life-insurance policies in order to qualify for Medicaid. To ward off policy owners from spending down their settlements, the proposed bills require that money go straight into an irrevocable bank account used solely to pay for long-term care.
There is nothing to prevent life-insurance owners from selling their policies to pay for long-term care, but legislators hope the new laws will help to publicize, as well as regulate, the strategy.
A drawback to these settlements, notes WSJ, is that the company buying the policy retains a “sizable chunk” of its value, which can amount to 45% of the policy’s death benefit, depending on a holder’s age and health.
Families find that selling a life-insurance policy can still help them meet immediate care needs for family members, even though they are losing a percentage of the policy upon selling.
Written by Jason Oliva