Creative LTC Planning:  Life Settlements

With 10,000 “Baby Boomers” turning 65 every day, the need for Long-Term Care Planning is becoming a stark reality, either for themselves or their aging parents. Unfortunately, less than 16% of those at, near, or in retirement have a Long-Term Care Plan in place, and this will eventually lead to some very difficult situations.  

Usually, it's not until Long-Term Care is needed that Americans realize there is little (if any) coverage through Medicare or health insurance, and the mounting expenses must be paid out of pocket.  “Crisis mode” tends to be the worst time to make long-term financial decisions; however, techniques may be available, even at this stage, for creative Long-Term Care Planning:  Life Settlements

Life Settlements 101.....

According to Tim Watkins, president of Genesis Living Benefits Services, “a Life Settlement is the sale of a Life insurance policy, in the secondary market, that is no longer wanted, no longer needed or no longer affordable. It is a revolutionary new way to unlock the true market value from life insurance policies that may otherwise be ready to lapse or surrendered.”   He goes on to say that “a wide variety of policies qualify for Life Settlements, including term insurance, permanent policies, and even survivorship life, which can create a pool of previously unavailable funds to help pay for Long-Term Care.”

Most families facing a Long-Term Care need are unaware of the potential value of existing life insurance; other than the accumulated cash value or future death benefit.   A Life Settlement can monetize the current value of the policy prior to death.....when it’s needed most.   There have been concerns in some parts of the country about the suitability of Life Settlements; however, the state of Texas recently took Long-Term Care Planning using Life Settlements to a new level.  Warren Hersch of LifeHealthPro.com wrote that “Texas Governor Rick Perry signed into law a bill that lets Texas state Medicaid officials tell policyholders applying for Medicaid assistance that they can sell their contracts to a life settlement company to cover custodial healthcare expenses.  Those who do so could receive Medicaid when the settlement funds are used up.”

Teaching an old dog a new trick.....

The use of life insurance as a Long-Term Care Planning tool could be an excellent option for those implementing a plan late in life or in poor or failing health.   Life Settlements simply offer a mechanism for older insurance policies; those which don’t have the new Long-Term Care planning features available today.   For example, a 70-year-old in need of Long-Term Care would not be able to qualify for a Long-Term Care plan.   However, if he owns a whole-life policy with a $500,000 death benefit and $75,000 of cash value, a life settlement could make that policy worth substantially more than just that cash value to the family for use today.

Merritt Mammoth, Senior Managing Director of Genesis Asset Advisors, explains that “life insurance policies are settled for a host of reasons. No matter what your particular reason is, never let a policy lapse, never let a term policy conversion period expire, and never surrender it before you have explored the secondary market opportunities.”  

In simple terms, a Life Settlement may represent a creative way to handle the expenses associated with a Long-Term Care need.

There is no “one size fits all” for Long-Term Care Planning, and a Life Settlement may be an excellent way for your clients to pay for care when it's needed. 

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