We are here to help you understand your various options to pay for Long Term Care expenses and choose the best option for you and your family. Here are some frequently asked questions about our products and services.
Converting your Life Insurance Policy into a Long Term Care Benefit Plan
Q: What is a Long Term Care Benefit Plan?
A: The Long Term Care Benefit Plan is the conversion of an in-force life insurance policy into a pre-funded, irrevocable Benefit Account. The Account is professionally administered and payments to a long term care provider are made monthly on behalf of the individual receiving care. It is a unique financial option for seniors because all health conditions are accepted, and there are no wait periods, no care limitations, no costs to apply, no requirement to be terminally ill, and there are no premium payments or fees. Policy owners have a legal right to convert an in-force life insurance policy into a Benefit Plan, and are able to immediately direct tax-free payments to cover their senior housing and long term care costs.
Q: What types of life insurance qualify for conversion into a Long Term Care Benefit Plan?
A: The conversion option applies to almost any form of life insurance: Universal, Whole, Term, and Group. The value of the conversion is based solely on the death benefit, and cash value is not a factor in determining the conversion value of a life insurance policy.
Q: What forms of long term care qualify? A: The Benefit Plan will pay the following monthly expenses directly to the health care provider:
- Homecare (Private Duty and Skilled Care)
- Assisted Living
- Memory Care
- Skilled Nursing Home care
- Hospice Care
Q: Is the Long Term Care Benefit Plan Tax Advantaged?
A: In many cases, the proceeds received from converting a life insurance policy insuring the life of a chronically or terminally ill individual into a Long Term Care Benefit Plan will not be subject to U.S. federal income tax. As a general rule, proceeds from the sale of a life insurance policy are subject to U.S. federal income tax; however, the Internal Revenue Code provides special exemptions for sales of life insurance policies insuring the lives of individuals who are terminally ill or chronically ill. In the case of a terminally ill insured, the proceeds from the sale of the policy will not be subject to U.S. federal income tax regardless of how the proceeds are used. And, if the insured is chronically ill, the proceeds will not be subject to U.S. federal income tax so long as they are used solely to pay for qualified long-term care services.
In addition, the current estate and gift tax exclusion is more than $5 million. Therefore, unless the insured has an estate in excess of the exemption, any residual amount of the Long Term Care Benefit which remains in the account when the insured dies may pass to the account beneficiary(-ies) tax free. If the policy owner and insured are not the same person then, in the case of a chronically ill insured who passes while funds remain in the Long Term Care Benefit Account, the policy owner will be required to pay U.S. federal income tax on any residual amounts remaining in the account.
Please note that the actual tax treatment of the proceeds from the sale of a life insurance policy will depend on many factors, including but not limited to who owns the policy, the health of the insured, the use of proceeds, the size of the estate and the state in which the policy owner lives (for purposes of state taxation). This material does not constitute tax, legal or accounting advice, and neither Life Care Funding, LLC nor any of its agent, employees, or representatives are in the business of offering such advice. The information above cannot be used by any taxpayer for the purpose of avoiding any IRS penalty. Anyone interested in selling a life insurance policy in order to fund Long Term Care Benefits should seek professional advice based on his or her particular circumstances from an independent tax advisor.
Q: What determines the amount of the monthly Benefit Payment? A: The conversion value of a life policy to fund the Long Term Care Benefit Account is based on an actuarial calculation that factors the face amount (death benefit) of the life insurance policy, annual premium payments and the health care needs of the applicant. Once the conversion value is determined and the enrollment is complete, expenses will be paid monthly to the appropriate health care provider.
NOTE: Long Term Care Benefits are only eligible for direct payments to the health care providers, including Home Care, Assisted Living, Memory Care, Nursing Homes, and Hospice. In order to qualify, a potential participant should have a need for care within 3 months from the time of application to qualify. For applicants with a longer time frame, policies should be kept in-force for a future conversion and can be reviewed at a future date when need to fund long term care has become more immediate.
Q: Are there any fees or obligations to apply?
A: No, there are no application fees and no obligations to apply. Once a policy is converted by the owner, the Long Term Care Benefit payments begin immediately and the enrollee is relieved of any responsibility to pay any more premiums.
Q: How long does the enrollment process take?
A: Enrollment can be completed in less than 30 days. However, the actual time to complete the process will vary depending on the applicant’s ability to provide the necessary information including: signed application and authorizations, copy of life insurance policy, last two years of medical records, and the offer/enrollment packet.
Q: How long do Long Term Care Benefit payments last?
A: The average enrollment period will last between one and three years. The Benefit is adjustable so an enrollee can customize the monthly Benefit payments to best meet their changing health care needs. Each case is unique and enrollees work with their families, and possibly a financial or legal advisor, to create a Benefit schedule to best meet their monthly budgets.
Q: Is there a Funeral Benefit?
A: Yes, all Benefit Accounts reserve 5% of the death benefit or $5,000, whichever is the lesser, to provide a funeral benefit payment to the Account’s named beneficiary.
Q: What happens if the enrollee dies before all of the Long Term Care Benefit is paid out?
A: Should the enrollee pass away with additional funds remaining in their Benefit Account, the remaining balance is paid directly to the enrollee’s named account beneficiaries. Enrollees and/or their beneficiaries are assured to receive the full Benefit amount even if the client dies before all monthly payments have been made.
Q: Is the enrollee actually transferring the ownership of the life insurance policy?
A: Yes, the enrollee will transfer all ownership and beneficiary rights to the life insurance policy to enroll in the Long Term Care Benefit Plan and complete a life settlement working directly with a licensed Provider. From the moment the Benefit Plan is established, the Benefits Administrator will begin making monthly payments to the appropriate health care provider as well as all future premium payments on the life insurance policy. The enrollee is no longer responsible for premium payments and the policy is no longer considered an asset that will count against them for future Medicaid eligibility.
Q: Is the Long Term Care Benefit Plan Medicaid Qualified?
A: Yes, because the policy is sold for its full market value and the funds are protected in an irrevocable account that is only used to pay for long term care services, the Long Term Care Benefit Plan is a 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 would be a violation of Medicaid’s asset transfer and look back requirements. A policy can be surrendered for its cash value to be spent down on care, or a policy can be sold for its market value and the proceeds can be used to pay for long term care as a qualified spend down. The Long Term Care Benefit Plan is a Medicaid qualified spend-down because the policy receives fair market value and the proceeds are only used to pay for long term care services.
A life insurance policy is legally recognized as an asset of the policy owner and it counts against them when qualifying for Medicaid. If a policy has anything more than a minimal amount of cash value (usually in the range of $2,000) it must be liquidated and that money spent towards cost of care before the owner will qualify for Medicaid. All Medicaid applications specifically ask if the applicant owns life insurance and full policy details. Failure to disclose and comply is fraud.
Q: In which states can a policy be converted?
A: A life insurance policy owner has the legal property ownership right to convert their policy into a Long Term Care Benefit Plan in every state in America.
Q: Is the Long Term Care Benefit Plan a long term care insurance policy or a policy loan?
A: Conversion of a life insurance policy into a Long Term Care Benefit Plan is not a long term care insurance policy or a loan, annuity, any form of hybrid life/LTCi policies, or an accelerated death benefit– it is actually the private market exchange of a life insurance policy for a pre-paid Long Term Care Benefit Plan at the time that care needs to be funded. There are no premium payments and nothing ever needs to be paid back.
Q: Can a life insurance company prevent a policy conversion?
A: A policy that has been in-force for longer than two years is beyond the “contestability” period and a life insurance company cannot challenge the policy owner’s legal right to convert their policy into a Long Term Care Benefit Plan.
Source: www.LifeCareFunding.com
