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Life Care Funding
A Solid Option to Finance Senior Care and Housing

Paying for Senior Care

A common question that older adults and family members have, "How do we pay for senior care?" Paying for a loved one's care like assisted living and home care can dig deep into a bank account. It's costly, but an expense Americans cannot escape. With the downturn economy playing havoc on investments, its effects play hard in both the younger and older families.

So what can Americans do to become empowered and make confident decisions regarding senior care and housing options?

There are several financial vehicles to under-used benefits that older adults can apply to help pay for high care. The top includes:

  • Life Insurance
  • Reverse Mortgage
  • Lines of Credit
  • Social Security Benefits
  • Annuity
  • Private Funds & Personal Assets
  • Trusts
  • Long Term Care Insurance
  • Medicare
  • Veterans Benefits
  • Disability Benefits

Read more on each financial vehicle that pays for senior care.

Using Life Insurance to Fund Long-Term Care

Many Americans have resources invested in life insurance policies but don't know they can access the funds to help pay for senior care. They're under the impression that life insurance only applies to a death benefit, but that's no longer the case.

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Life Settlement

Instead, policyholders have some options for using life insurance as a source of funds beyond a death benefit. Options also include; cash surrender and viatical settlements. It's called a life settlement, and it allows life insurance policy owners to use their legal right to convert an in-force life insurance policy to enroll in the Medicaid Qualified Benefit Plan.

When doing so, the policyholder can immediately direct tax-free payments to cover senior housing and long-term care costs. The only caution, be careful which method to use when accessing the funds.

To learn the nuts and bolts of converting a life insurance policy into funds to pay for senior care expenses, I interviewed Mr. Chris Orestis, President and CEO of Life Care Funding.

Before the interview, I researched life settlements and found questionable controversy on the topic. Instead of forming negative opinions, I took hard questions to Mr. Orestis and found the opposite. Converting life insurance policies into resources for people to use while living made a lot of senses, and a better choice than having the policy lapse.

Is Life Care Funding a life settlement company?

Chris Orestis: We are not a life settlement company. Life Care Funding is a long-term care funding company. We finance the life insurance policy and then pay the premiums and hold them until we collect the death benefit. In regulatory terms, we're classified as a "funding entity."

The policy transaction is specially designed to conform to the secondary market regulations that govern life settlement/viatical, and the benefit qualifies for the Medicaid spend-down of the asset proceeds. Upon receipt of fair market value, the funds go to an irrevocable bank account administered by a third-party. The Long Term Care Benefit Plan is a regulated and Medicaid qualified financial vehicle to help cover the costs of long-term care.

Do you hold the life insurance policies to maturity and collect the net death benefits? Or do you resell policies to hedge funds or other investors?

Converting a life insurance policy into a Long Term Care Benefit Plan provides multiple layers of consumer protections:

  • The transfer of ownership of life insurance policies conforms to the rigorous regulatory standards that govern life settlements in each state.
  • An irrevocable, FDIC insured Benefit Account head with a nationally chartered bank & trust company, must conform to federal and state banking regulations.
  • Because the account is irrevocable and can only pay for long-term care services, payments administered as a Medicaid qualified spend-down and were tax-free.

What is a Medicaid qualified Benefits Plan?

Medicaid qualified benefits plan

I understand a Long-term care benefit (like LTC insurance) - but what do you mean when you say Medicaid qualified benefits plan? If a person has life insurance and converts it into a life settlement policy, s/he must spend that money down before qualifying for Medicaid, right? Isn't that true for any LTC policy or personal assets, I'm curious why you call it a Medicaid qualified benefit?

Chris Orestis: Because the system sells for its full market value. It stays in an irrevocable account and only used to pay for long-term care services, it is both a Medicaid qualified spend-down and a tax-advantaged account.

  • Tax Status: the proceeds converting a life insurance policy insuring the life of a chronically or terminally ill individual into a Long Term Care Benefit Plan is not subject to U.S. federal income tax. As a general rule, proceeds are subject to U.S. federal income tax; however, the Internal Revenue Code provides special exemptions for the sale of life insurance policies that insure a chronically or terminally ill person.

In this case, the proceeds from the disposal of the plan is not subject to U.S. federal income tax. And, if the insured is chronically ill, the proceeds are not subject to U.S. federal income tax so long as they're used to pay for qualified long-term care services.

  • Medicaid Qualified Spend-Down: According to the Center for Medicare and Medicaid Services (CMS), transferring ownership of a life insurance policy for less than its fair market value violates Medicaid's asset transfer and look back.

The Long Term Care Benefit Plan is a Medicaid qualified spend-down because the plan receives fair market value, and the proceeds are only used to pay for long-term care services.

Can the life insurance policy pay a lump sum?

Or is the payment made in monthly installments? How is the lump sum payment calculated?

Chris Orestis: A Long Term Care Benefit Plan converts an in-force life insurance policy into a funded, irrevocable FDIC insured bank account. The account makes automatic monthly payments directly to long-term care provider selected by the account owner. This option extends the time a person would remain private pay and delays their Medicaid entry.

Conversion of a life insurance policy into a Long Term Care Benefit Plan is not a long-term care insurance policy, a loan, annuity, or any form of hybrid life/LTCi policies. Instead, the Long Term Care Benefit Plan is a private market exchange of a life insurance policy for a pre-paid Benefit Plan. It occurs at the time of need for care.

What happens to the Life Care Funding, if the enrollee dies before receiving paid benefits?

Chris Orestis: All Benefit Accounts reserve 5% of the death benefit or $5,000, whichever is the lesser, to provide a funeral benefits payment to the Account's named beneficiary. Should the enrollee pass away with additional funds remaining in their Benefit Account, the remaining balance goes directly to the enrollee's designated beneficiaries.

Enrollees and their beneficiaries will receive the full Benefit amount, even if the client dies before receiving all monthly payments.

How does Life Care Funding calculate the sale of the life insurance policy (Fair Price)?

I understand the fair price of a life insurance policy is more than the cash value but less than the death benefit. Can you cite an example? Say the life insurance policy is worth $50,000 and the death benefit is $250,000 - how is the life settlement calculated for the Long-Term Care Benefit?

Chris Orestis: We review each case, so there's no way to predetermine what the benefit is before an application review. It's determined by a number of factors, including the type of policy you own and other information.

Historically, conversion values are between 20-65% of face value, and the average payout has been close to that range. However, there are some situations where one receives more or less. There are no up-front costs or obligation for the review of your application or to enroll.

The conversion value factors the face amount (death benefit) of the life insurance policy, annual premium payments and the health care needs of the applicant.

NOTE: Benefits are only eligible for direct payments to the health care providers, not to the enrollee. A Benefit Plan participant will need some form of accepted Senior Care within three months from the time of application to qualify. For applicants with a longer period, keep policies in force for a future conversion and reviewed when need for senior care.

Seniors tend to surrender a life insurance policy because they cannot afford to pay premiums, or they are preparing for Medicaid eligibility and they abandon the policy.

Policyholders looking for alternatives to abandoning a plan, and converting it will receive fair value in return. The individual must pay for care from private funds which are not constrained by Medicaid services.

Describe the ideal candidate for life settlement.

Chris Orestis: A candidate for a life settlement usually has a life expectancy of 2-15 years.

The ideal candidate has either a universal, whole, group insurance plan with a minimum death benefit of $50,000. And has a need for long-term care services within a 90-day range.

Learn more about Chris Orestis and Life Care Funding.

Carol Marak
Carol Marak

After seven years of helping her aging parents, Carol Marak has become a dedicated senior care writer. Since 2007, she has been doing the research to find answers to common concerns: housing, aging and health, staying safe and independent, and planning long-term.