Using A Long Term Care Rider
Life insurance policies offer supplemental coverage that you can access from the death benefit while youâre alive through something called a rider. What types of riders you can add to your coverage depends on your individual policy, but some policies offer a long term care rider, which pays out funds for medical care if you are too ill to take care of yourself.
To qualify for the rider, you must be unable to independently perform two of the six activities of daily living temporarily or permanently. The following activities are considered activities of daily living:
Walking or getting from one place to another
Using the toilet
Maintaining bowel and bladder continence
If you meet the riderâs requirements, the benefit paid out to cover the cost of your assisted medical care is taken from your policyâs death benefit and leaves your beneficiaries without any financial support when you die.
Who Pays For Nursing Home Costs
Who pays for nursing home costs? Well, many people think Medicare or their health insurance carrier will pay for nursing home or assisted living services. Unfortunately, that is not true. These programs will not pay for these services known as custodial or skilled nursing care.
Typically, Medicaid has been the payer of most skilled nursing and custodial care. It will pay these costs once you meet a certain monetary, personal asset threshold. This threshold is different for each state. However, the limit is about $2,000 of income and $3,000 of assets/resources.
Generally speaking, your total, personal asset value will determine if you qualify for Medicaid and the threshold met. Once you meet that threshold the $2,000 income/$3,000 asset value we described above Medicaid will pay.
What you may not realize is that nearly all assets that you have control over, or in your name, is fair game for nursing home costs.
What does this mean? That means Medicaid will require your
- retirement savings you worked hard for,
- bank savings,
- life insurance with cash value, and
- other personal assets
to pay for nursing home costs before it will pay.
What To Do With Your Life Insurance Policy
If you have a life insurance policy with a face value greater than $1,500 and cash value, you have several options.
You could surrender or cash in the policy. You would then have to spend the money you receive until you have less than $2,000 in order to qualify for Medicaid.
You could also withdraw the cash value from the policy, or take a loan against it. You would have to spend down the money you receive prior to qualifying for Medicaid, but you would be able to retain all or most of the death benefit of the policy.
You could transfer the ownership of the policy to your spouse, your children or a trust. Keep in mind that the insurance policy has value, and if you give the policy to your children or transfer it to a spouse, you will be subject to Medicaids gifting restrictions.
When you apply for Medicaid, you must provide your financial statements for the past five years. Medicaid will look back to make sure that you have not given away any of your assets in order to qualify for Medicaid.
If you have given away assets within the five years preceding your Medicaid application, you must wait longer to be eligible for Medicaid. The length of time you have to wait depends on the amount you gave away and the average cost of nursing home care in your state.
Suppose you give away a life insurance policy that is valued at $10,000. If the cost of nursing home care in your state averages $5,000, you would have to wait two months before being eligible for Medicaid.
Using The Policys Cash Value
If you have a whole life policy, your policy may have accumulated some cash value, which is the investment component associated with some permanent life insurance policies. The cash value can be used while youâre alive, including taking out a loan against it.
When you take out a loan against the cash value of your policy, youâre not withdrawing from the policy but rather borrowing from it, which means youâre technically borrowing from your insurer and accruing interest on the loan.
You could use this to pay for nursing home expenses, but you probably donât want to. Assuming youâre using the cash value because nursing home costs would otherwise be unaffordable, itâs unlikely that you would be able to pay the loan back. Like most debts, the amount you still owe doesnât just disappear when you die.
If you die and havenât paid back the loan taken against your cash value, it is depleted from the death benefit paid out to your beneficiaries. Depending on how big of a loan you took and how much interest you accrued â keeping in mind that nursing homes can end up being tens of thousands of dollars â your beneficiaries could receive a diminished benefit or none at all.
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What Is A Long
Anyone in possession of an in-force life insurance policy has the ability to transform that policy into a pre-funded financial account that will disburse a monthly benefit stipend to help pay for that individuals long-term care needs. Unlike life insurance, a long-term care benefit plan account is a Medicaid qualified asset.
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 wont count against them in the Medicaid spend-down process.
The benefits administrator assumes all responsibility for paying the monthly premiums to the insurance company and agrees to pay the previous policyholder a series of monthly payments based on the value of their policy. These payments can then be used to pay for a persons in-home care, nursing home care, assisted living or even home modifications. The long-term care benefit is usually worth more than the cash surrender value but less than the face value of the policy.
If this process sounds unfamiliar, youre not alone. Most people dont know that the long-term care benefit conversion option exists. It is important to note that a long-term care benefit plan is not the same as a long-term care insurance plan.
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About Senior Legal Line
Senior Legal Line is a legal question and answer line for Seniors.
The column is written by the Senior Citizensâ Law Project. It is not meant to give complete answers to individual questions. If you are 60 years of age or older and live within the Minnesota Arrowhead Region, you may contact the Legal Aid Service of Northeastern Minnesota with questions for legal help by writing to: Senior Citizensâ Law Project, Legal Aid Service of Northeastern Minnesota, 302 Ordean Bldg., Duluth, MN 55802. Please include a phone number and return address. To view previous articles, go to: www.lasnem.org. Reprints by permission only.
First Lets Discuss Long
According to the U.S. Department of Health and Human Services, in 2016, the average cost for long-term care in the United States was:
- $225 a day or $6,844 per month for a semi-private room in a nursing home
- $253 a day or $7,698 per month for a private room in a nursing home
- $119 a day or $3,628 per month for care in an assisted living facility
The cost generally depends on the type of care and the duration of time the care is needed, as well as the provider and the state in which the elder resides.
There are a few common ways an individual may pay for long-term care: personal funds/assets a life insurance policy long-term care insurance and Medicaid. Because the above numbers are cost prohibitive to many individuals without the assets or long-term care insurance, people often look to Medicaid to pay for this care.
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How To Fund The Funeral Trust
Remember that any money in CDs, money market accounts, savings accounts, annuities, cash value in life insurance policies, non-qualified brokerage accounts are all subject to Medicaid eligibility computations. These can easily be used to fund the life insurance policy. As a result, the money goes from a non-protected asset to a protected asset. Why is this important? These assets will have to be used to pay for nursing home care. By transferring them to a funeral trust, you can be certain the money will be there when your family needs it the most. The trust can easily protect assets from nursing home costs.
What Is A Guaranteed Issue Policy
Guaranteed issue life insurance policies are the most common life insurance policies for nursing home residents. In short, guaranteed issue policies are a type of no exam life insurance policy that is designed to provide coverage last-resort.
A guaranteed issue policy is risky to purchase, even for nursing home residents. Why? Guaranteed issue policies are usually expensive, have coverage amounts under $25,000, and have rules that could further reduce the death benefit unless the policyholder dies from an accident.
Nursing home residents who purchase guaranteed issue life insurance should do so if they think they will be around for another two or three years, depending on their insurance company. Otherwise, the company might not pay out when the time comes.
Guaranteed Issue Life Insurance Rates
In many cases, guaranteed issue policies cost about 1.5 times that of a whole life insurance policy which is sampled above. Keep in mind with the above rates that most companies wont offer coverage of $250,000 for guaranteed issue life insurance.
On the positive side, guaranteed issue policies are issued instantly if you are approved. This makes it a little easier to make adjustments on the go. An added bonus is that your premiums wont change. Level premiums for nursing home residents provides some financial consistency.
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The Disadvantages Of A Funeral Trust
Of course, nothing is perfect. There are advantages and disadvantages to everything. While we believe the advantages outweigh the disadvantages, the disadvantages are:
- the trust is irrevocable, which means once it is set, it cant be changed. You cant access the cash value of the life insurance. Therefore, you cant change the particulars.
- the money is paid directly to the funeral home. Your estate receives any excess money. As a result, the excess could go through the probate process.
Life Insurance For Nursing Home Residents: The Bottom Line
At the end of the day, nursing home residents need life insurance just as much as anyone else, if not more. The key to getting life insurance for nursing home patients is to purchase a policy before moving into a nursing home.
If you live in a nursing home, you will be severely limited to fewer policies, lower death benefits, and less competitive life insurance rates. That doesnt mean there isnt affordable life insurance for nursing home residents out there.
Want to start shopping for high-quality life insurance even in a nursing home? Take advantage of our FREE quote tool below to get instant life insurance quotes for nursing home residents from top life insurance companies today.
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Will The State Take My Home If I Need Medicaid To Pay For My Care In New York
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Not if you have done asset preservation planning. The state never takes your home. However, ownership without proper planning may result in a forced sale if Medicaid demands reimbursement after death. Medicaid may also impose a lien during your lifetime if it is paying for nursing home care. Fortunately, these scenarios are avoidable by undertaking asset protection planning with a reputable elder law attorney. Elder law attorneys are best suited to establish viable long-term health care plans and achieve Medicaid eligibility while preserving assets for the benefit of the applicant or his or her heirs.
Unless you have purchased a long-term care policy, the only health care insurance that pays for long-term care is Medicaid. In New York, an applicant for Medicaid cannot own more than approximately $16,000 in assets. While the Medicaid recipient is living in his or her home, it will be exempt. This is known as Community Medicaid, where aides are provided at no cost to the applicant. However, if the home remains in the name of the patient, Medicaid will seek to recover after death. Elder law attorneys can discuss strategies, such as the use of a trust, to avoid such an outcome. New Yorks Community Medicaid eligibility rules are set to change April 1, 2021. The advance notice of these changes is affording clients an opportunity to employ strategies that will no longer be available after April.
Can You Prevent Financial Abuse When Your Loved One Is In A Nursing Home
Yes, there are steps you can take to protect your loved one and keep them from becoming a victim of financial abuse. Family members are indeed the first line of defense. And the more proactive you are, the easier it will be to protect your loved one.
Some things you can do include:
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Financial Abuse In Nursing Homes Is Common
As the number of dual-income households increases, fewer families can provide aging loved ones with the care they need. Understandably, this has led to an increase in the rate of nursing home admissions, both in Kentucky and across the United States. Unfortunately, the instances of financial abuse in nursing homes are also increasing at an alarming rate.
Elder abuse is shockingly common in the United States, with one in ten seniors reporting abuse of some type. However, financial abuse and exploitation are the most common types of elder abuse, accounting for between 12 and 35 percent of all reports. According to some studies, over four percent of all older Americans report experiencing financial abuse at some point in their life.
It is also important to understand that elder financial abuse is also underreported. Often, nursing home residents may not realize that they were victimized or fear that family members will not believe them. However, financial abuse is real, and the collective economic impact it has is tremendous. In fact, according to the National Council on Aging, the annual cost of financial abuse committed against older Americans ranges between $2.9 billion and $36.5 billion.
Medicaid Coverage Of Nursing Home Costs And Long
Medicaid is a federal program, administered by each state, that helps pay medical expenses and long-term care costs for people with low income and few assets.2 While Medicaid may pay for nursing home costs, there are strict financial rules for your Medicaid coverage to kick in. That often means spending down all your assets first. Think of it like hitting an insurance premiumbut the premium may be your life savings and all you own.
If your financial goal when you pass away is to have your last check bounce, then theres really no need to buy long-term care insurance, De Haan says. Medicaid would suffice. However, if your financial goals include leaving a legacy to your family or a charity, thats when you need to start considering other long-term care options.
One of our top retirement professionals looks at how to cover the high costs of long-term care.
We have a tendency to think that the way the world is now is the way its always going to be. If youre healthy and have clear cognitive abilities, its hard to imagine not being able to remember somebodys name, or not being able to mow the lawn, or not being able to get yourself dressed. Even as we get older and see others go through it. This bias sometimes inhibits our ability to plan for these long-term risks.
Tyler De Haan, director of business development in retirement solutions
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How Your Assets Impact Eligibility
Besides income, your assets will be counted toward meeting eligibility requirements. Countable assets include checking and savings account balances, CDs, stocks, and bonds.
In most states, you can retain up to $2,000 as an individual and $3,000 for a married couple outside of your countable assets. However, these amounts may vary depending on the state in which you live.
Your home, your car, personal belongings, or your savings for funeral expenses remain outside of countable assets. If you can prove other assets are not accessible , they too are exempt. A house must be a principal residence and does not count as long as the nursing home resident or their spouse lives there or intends to return there.
Upon becoming eligible for Medicaid, all of the applicant’s income must be used to pay for the nursing home where the applicant resides. However, you may be allowed to keep a monthly “allowance” and a deduction for medical needs, such as private health insurance. The amount of the allowance varies depending on your living arrangements, type of nursing facility, and state rules. If you are married, an allowance may be made for the spouse still living in the home.