Life settlements can be an important asset for seniors to consider when thinking about how to pay for long term care, according to a report issued on July 19, 2017 by the National Association of Insurance Commissioners’ Long Term Care Innovation (B) Subgroup.
The report recommends life settlements – in which policyowners sell an existing life insurance policy and receive a significantly greater cash settlement than if they lapse or surrender the policy back to the insurance company – as “one option seniors might use to generate resources to pay for their long term care needs.” The NAIC report cites federal and university studies that show that policyowners who sell their policies can receive lump sum payments that are “four or more times greater than if they lapsed or surrendered their policy,” and that, in some instances, policyowners can “sell a portion of the policy, thus retaining a portion of the original death benefit for their beneficiaries, while reducing or eliminating future premiums.”
Importantly, a life settlement is the only option mentioned in the NAIC long term care report which does not require policyowners to pay additional money out of pocket in order to realize a benefit. The other options cited in the report are products sold by insurance companies that require cash outlays by policyowners in order to receive future benefits. These insurance company options may not be practical for policyowners who are looking into financing long term care while living on a fixed income.
Both financial professional and elder care advisors are already recommending that life settlement proceeds can be used to pay for long term care costs under structured programs, according to the NAIC. The Subgroup report also cites federal tax law that allows certain policyowners to sell their policies and receive the proceeds of the sale free from federal tax.