ORLANDO, FL--(Marketwired - Sep 20, 2013) - The federal Commission on Long-Term Care, established by Congress to examine the worsening long-term care crisis and to propose potential solutions for establishing a high-quality long-term care services and supports delivery system, released its final report this week. The comprehensive report focuses considerable attention on the financing of long-term care services and includes a number of policy ideas and proposals put forth by Commission members. According to Darwin Bayston, President and CEO of the Life Insurance Settlement Association (LISA), the report notes the role that life settlements can play in the private financing of long-term care, and one of the ideas presented recommends further examination and perhaps expansion of "the conversion of life insurance policies to long-term care benefit plans."
A life settlement is the sale of a life insurance policy by a policyowner who can no longer afford, no longer needs, or no longer wants their policy. Rather than take a grossly inadequate cash surrender value from an insurer, or receive nothing at all if the policy were to lapse, the owner sells the policy to an investor by entering into a highly-regulated life settlement transaction. Policyowners who sell their policies in this manner receive fair market value that is, on average, 400-500 percent greater than the amount they would have received from the insurance company.
In the case of seniors seeking to qualify for Medicaid to pay for long-term care services, Medicaid rules force policies to be surrendered. Rather than force these policies to be surrendered, states are now encouraging seniors to sell their policies through a life settlement and to use the proceeds to pay for long-term care services, thus delaying, and in some cases completely avoiding, that person from going onto Medicaid.
According to a 2007 GAO report, 38 percent of all Medicaid applicants have a life insurance policy. If these policies are converted through a life settlement and the proceeds are used to pay for long-term care, the value created through a life settlement will provide much-needed financial resources for seniors and their families and reduce the considerable financial strain on the Medicaid system.
Earlier this year, Texas became the first state in the nation to pass a so-called Medicaid Life Settlement law. The new Texas law notifies those who are about to access Medicaid that they can sell, rather than surrender, their life insurance policies, and ensures that the proceeds of a life settlement are used to directly pay for that person's long-term care services. New York, California, New Jersey, Florida, Kentucky, Louisiana and several other states are considering similar legislation that would greatly benefit seniors, their families, and state governments.
The Commission on Long-Term Care called for further assessment of the option of converting life insurance policies to help pay for long-term care services and supports and, if feasible, further expansion of these programs. The Life Insurance Settlement Association (LISA) supports this recommendation and will continue to advocate for life settlements as a "win-win" for seniors and governments who are in need of resources to pay for long-term care.