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More Valuable Than You Thought:  Your Life Insurance

If you need long-term care, you will soon come face to face with the fact that it is extraordinarily expensive.  When you take stock of all your assets, one of them is your life insurance.  If you need the money to pay for your care, or if you want to protect that money, you may need to cash out your policy.  The policy is only worth the stated “Cash Surrender Value,” right?

Not necessarily.

A Life Settlement can actually give you more than the cash surrender value of your policy.  This financial instrument was abused when it first started being used, and it came to have an unsavory reputation.  However, in recent years the government has moved to regulate the market, making it a valuable and useful option for people who can no longer afford the premiums, or who need to tap the value of their policies when doing Medicaid planning.  If you cannot afford to pay your insurance premiums, or if you plan to surrender your policy for its cash surrender value, you would be well-advised to consider a Life Settlement.

How does it work?

Instead of surrendering the policy or letting it lapse, you would contact one or more Life Settlement companies.  The companies would analyze your policy and offer you, in essence, a “buyout.”  If you accept, you sell your insurance policy to one of the Life Settlement companies, and now they own it.  You have cash, and you are no longer responsible for premiums.

The new, more regulated Life Settlements were designed to enable seniors, who needed money to pay for their long-term care, to get the most cash possible out of their life insurance policies.  In a number of states, your insurance policy is converted into a plan that is tax-advantaged, as long as you use the money exclusively to pay for your long-term care services.  It is part of your ‘spend down’ in those states.

However, in New York, you can protect some or all of that money from the ‘spend down’ and still receive government benefits.  You can sell your insurance policy to a Life Settlement company for cash, and then transfer that cash as part of your Medicaid planning.

In fact, if you have an insurance policy that has a cash surrender value, that value counts as a resource for Medicaid purposes.  If you want to avoid having to use the cash surrender value as part of your ‘spend down,’ you will have to access its value in order to transfer the proceeds elsewhere or transfer ownership of the policy.  You might as well maximize the value of the asset you are going to protect.

Even Term policies that are convertible to ‘permanent’ insurance can have value.  Some term policies have an option to convert to universal life insurance.  Often the premiums rise dramatically.  If you would otherwise let the policy lapse once the conversion period arrived, instead you could get cash out of the policy by selling it.

I learned about the better-regulated Life Settlement option from a friend at LifeCare Funding.  There is more information on their website, www.lifecarefunding.com, or on the Life Insurance Settlement Association website, www.lisa.org.

Lamson & Cutner does not endorse any particular Life Settlement company and does not receive anything of value from LifeCare Funding or any other company.  Please contact us if you need any assistance in formulating a plan regarding long-term care.

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