Using Your Life Insurance Policy to Pay for Long-Term Care

It might be hard to make choices about your life insurance, especially if you are a senior. These policies can affect whether you are eligible for Medicaid. The premiums for them could subtract from your income in your golden years. Then you may not be able to cover the cost of elder assistance or living expenses. When you’re older, you might want to abandon or cash in your policy, but that’s not the only option. You could pay for long-term care and still qualify for Medicaid while having enough left for your living expenses.

Cashing in Your Insurance

If you need funds right away, the best option might be either cashing in the policy or borrowing against the cash value. Your policy type will determine which option is better. When you need to take money out of your policy, you can find the cash value in seconds. Then you can make the best decision.

Getting a Long-Term Care Benefit Plan

You can convert your life insurance into a long-term care benefit plan called life care benefit plan. Anyone who has a valid policy can turn it into a financial account that’s pre-funded. It will distribute a certain amount of money each month so you can pay for long-term care. Unlike insurance, these plans are Medicaid qualified assets.

The idea is to transfer the ownership of that insurance to someone who can administer the benefits. You will no longer own it, meaning it does not count against you when qualifying for Medicaid. Your administrator will pay the premiums each month and pays you each month, based on the policy value. You can use the funds to help with assisted living, home care, nursing home expenses, or other costs that might come up. Usually, the benefit is worth less than the policy’s face value but more than the cash surrender value. You may not have heard of the process before, but it’s not that common. Many people don’t know about the option is available to take advantage of. Remember that long-term care benefit plans are not the same as long-term care insurance.

Converting Life Insurance: The Pros and Cons

It might seem like the choice is obvious, but there are some benefits and drawbacks of converting your policy. Of course, some of the advantages include not having monthly premiums and adjustable payout amounts. Each payout doesn’t count against you if you want to qualify for Medicaid since each goes to your provider. If you pass away before the benefits are paid to you, the remaining balance can go to your beneficiary of choice.

However, you need to be able to use long-term care immediately when applying for the benefit plan. The requirement is usually to need the assistance within the first three months of applying. That’s because you aren’t getting the payments directly – they are going to the provider. But if you have a smaller amount of insurance, such as less than $10,000, you may find it better to give it up for the cash surrender value.