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How your life insurance policy can pay for long-term care expenses

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By Hook Law Center

A number of companies, such as Life Care Funding, will purchase a senior’s life insurance policy from him or her. In exchange, the company provides a portion of the face value of the policy to individuals facing high long-term care costs.

These “life settlement” companies purchase the policy from the policyholder, then continue to pay the premiums. They make a profit by collecting on the policy after the policyholder’s death.

In addition to acquiring cash that can help with the immediate costs of long-term care, selling one’s life insurance can make it easier to qualify for Medicaid. Once the policy is sold, it no longer belongs to the person who sold it, so individuals do not need to turn it over to qualify for Medicaid.

As people age and earn less income, it is not uncommon to allow life insurance policies to lapse, rather than pay the premiums. Most life insurance policies only have value after death, with no cash surrender value. That’s why selling the policy can make sense for seniors who face high care costs, do not have dependents who would rely on the life insurance after their passing, and do not have family members who can help out with the cost of the premiums.

Life settlement companies make an offer on a policy based on the person’s age and medical history, along with the face value of the policy. Depending on the company, this offer can be anywhere from 20 to 45 percent of the original face value.

Although life settlement companies may benefit some seniors, they are still a relatively new and tiny industry, with little regulation in most states. Families considering life settlement should carefully weigh their options and financial situation before deciding to sell.

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Posted on Monday, March 23rd, 2015. Filed under Estate Planning, Long-Term Care.