Most people know how life insurance can help them provide for the future needs of their loved ones. What many do not realize is that life insurance conversion—converting a life insurance policy into a long-term care benefit—is an option that could benefit them and their families right now, by helping to fund home care, assisted living, skilled nursing and hospice.
Why considering life insurance conversion is a good idea
Senior living can be expensive, especially when needs change and supportive care is a must. Continuing Care Retirement Communities (CCRCs) are excellent options that provide multiple levels of care, allowing an adult to move in once and age in place. However, the up-front admission fee can be high, and may be more than a senior has saved over the years.
In addition, converting a life insurance policy into care services provides a higher return than the cash surrender value of a life settlement. It also allows a policyholder to maintain Medicaid eligibility.
Statistics on the need for long-term care are convincing
It can be tempting to think the need to fund long-term care may never arise, and while that may be true for some, there are numbers to consider as you consider life insurance conversion as well as other sources of funding for future care.
According to LongTermCare.gov:
- The duration and level of long-term care varies from person to person and often changes over time.
- A person turning 65 today has almost a 70% chance of needing some type of long-term care.
- On the average, women require care 3.7 years and men require it 2.2 years.
The conclusion: the more you know in advance, the better decision you can make and the more peace of mind you will have when the need arises.
Download our free guide: Financial Planning Guide to Retirement Living at a Life Plan Community
How life insurance conversion works
Anyone with an in-force life insurance policy can transform it into a prefunded financial account that disburses a monthly benefit to help pay for long-term care needs such as home care, assisted living, skilled nursing and hospice. Unlike life insurance, this account is a Medicaid-qualified asset.
There are no application fees or obligations to apply, and the typical enrollment time is 30-45 days. Once a policy is converted by the owner, the long-term care benefit payments begin immediately, and the enrollee is relieved of any responsibility to pay anymore premiums.
- The conversion process transfers ownership of a life insurance policy from the original holder to an entity that acts as the benefits administrator.
- Because the original owner no longer holds the policy, it won’t count against them in the Medicaid spend down process.
- The benefits administrator assumes all responsibility for paying the monthly premiums on the policy to the insurance company and agrees to pay the previous policy holder a series of monthly payments based on the value of their policy.
- These payments can then be used to pay for your long-term care.
The pros of life insurance conversion
- You can convert any type of life insurance plan: whole, term or universal.
- There are no monthly premium payments; monthly payout amounts are adjustable based on how many months you want to receive payments.
- Monthly payouts don’t count against qualifying for Medicaid coverage; a long-term care benefit plan is recognized by Medicaid as an acceptable spend-down during the five-year look-back period
- A long-term care benefit plan is comprised of “private pay” dollars, which means that it can be used to pay for any kind of care—home care, assisted living, skilled nursing and hospice.
- A special fund is set aside for future funeral expenses.
The cons of life insurance conversion
- You must have an immediate need for some form of acceptable long-term care, because monthly payments are made directly to a long-term care provider, not the previous holder of the life insurance policy.
- Individuals with smaller policies ($10,000 or less) may be better off holding on to their plan or giving it up it in exchange for the cash surrender value. Or, those who have a life insurance policy with a large cash value built in (e.g. a $100,000 policy with a $90,000 cash value) may be better off taking that cash value.
At St. Mark Village, we are here to help answer your questions. We can help you sort through available sources for funding senior care for you, or for a loved one. And we also suggest you consult with your financial manager to see which option is right for you.
Choosing Life Care at St. Mark Village means financial security, value, and the peace of mind of seamless access to future care options. Truly the greatest gift you can give yourself and your loved ones.
Want to know more about how to financially plan for retirement living? Download our free guide, Financial Planning Guide to Retirement Living at a Life Plan Community, or contact us. We’d love to hear from you.
