Your clients who are nearing retirement age might often wonder why they bother maintaining the life insurance policies they have funded for years. With children grown, the need to provide for beneficiaries in the event of an untimely death has already been eliminated. Further, these policies are considered assets that can have a significant impact when determining Medicaid eligibility.
Despite this, recent proposals in several states can give older clients a reason to maintain their policies and provide peace of mind in Medicaid planning. Under these proposals, ownership of a life insurance policy can actually help clients in long-term care planning as more state Medicaid offices embrace the use of life settlements in conjunction with Medicaid coverage.
The Proposals
Many clients will eventually need to rely upon Medicaid coverage for long-term care services in a nursing home because Medicare and private health insurance cover only limited long-term care, and traditional long-term care insurance has become prohibitively expensive for many in recent years. Since Medicaid coverage does not kick in until the client spends down assets to below the system-mandated threshold, many would end up surrendering their life insurance policies in order to meet these asset requirements.
To avoid this result, several states have proposed legislation that would use a type of life settlement technique to convert the value of the life insurance contract into a stream of income that must be used to fund long-term care. Florida, for example, would require that the proceeds of the life settlement be held in an irrevocable state or federally insured account with a schedule of payments to provide for long-term care.
Further, Florida's proposed rule would permit a death benefit equal to the lesser of $5,000, or 5% of the account value, which would be paid to the client's beneficiaries or estate. Upon the client's death, if the account schedule called for further long-term care payments, those amounts would be added to the death benefit.
Kentucky's proposal contains similar provisions but also would require that the face value of the life insurance policy exceed $10,000 before the client could enter into a life settlement with the state.
How to Advise
