Could Your Life Insurance Cover Elder Care?

Could Your Life Insurance Cover Elder Care?

As aging Americans face rapidly rising health care costs, some states are now encouraging citizens to cash in their life insurance policies in order to pay the bills.

In late May, Texas became the first such state to pass a Medicaid Life Settlement law, which allows residents to sell their life insurance policies to a third party for more than its surrender value to pay for long-term care. This type of life insurance sale is known as a "life settlement." At least seven other states have similar bills in the works, The Wall Street Journal reports.


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In the majority of cases, the insured already hold the right to convert their policies to pay for long-term care—the problem is, most don’t realize it. In fact, many seniors actually end up surrendering their policies as part of a “spend down” strategy to qualify for Medicaid coverage. Thus, they receive little or nothing in return for their policies, despite paying hefty premiums for years.

What Do These Laws Mean for You?

States hope that their bloated Medicaid tabs could be significantly reduced if, instead of automatically dropping policies and signing up for Medicaid, seniors choose the life settlement route instead.

With a life settlement, the proceeds from the sale would go straight into an account only designated for long-term care services like assisted living and nursing home fees—pricey facilities that can quickly deplete retirement savings.

And of course by avoiding Medicaid, consumers gain more personal control over their choice of healthcare providers and options.

RELATED: 10 Things We Bet You Didn't Know About...Life Insurance


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