National Underwriter (published June 14, 2010)
by Chris Orestis, President Life Care Funding Group
The question was: My client would like to use a life settlement to help pay the assisted living expenses for her mother, who is alert but frail and needs the care the community provides. The mother is the owner and insured of a $250,000 UL in-force policy, but the daughter (my client) has power of attorney for her mother’s financial affairs. Is a life settlement the best option in this situation and how do you recommend I proceed?
The answer is: Monetizing life insurance policies to help cover the costs of long term care in its various forms has grown much more common in the last couple of years.
Providers of assisted living, skilled nursing home care and home healthcare have come to realize the financial opportunity for policy owners in need of their services but lacking in funds. States are now waking up to see that the use of a life insurance policy to access money is a better route for seniors than letting a policy lapse or be surrendered. Maine, Oregon and Washington are three examples of states that have passed laws requiring insurers to notify policy holders of their legal right to a life settlement at the point that a policy would lapse or be surrendered. As time marches on, more states are considering and will enter this law onto their books.
Simultaneously, more seniors and their families are becoming aware that a life insurance policy can be cashed in through a variety of mechanisms to raise money to help cover the very expensive costs of long term care.
In this particular example, the family’s representative will need to be aware of a few factors. First, when going down the path of monetizing a life insurance policy, it is critical that the family members are in agreement and are active participants in the process. Working with the daughter as POA will help move the process along and not burden the mother. Unfortunately, a policy of this size will not find many interested life settlement companies as most have minimum face size requirements in the range of $500,000-$1,000,000. Also, the companies that specialize in underwriting for life expectancy evaluations do not have the ability yet to accurately account for the sudden dynamic of “Life Expectancy Compression” that occurs in a long term care scenario.
You will need to look for a company that specializes in working with the long term care space and understands how to underwrite this specific population. Also, keep in mind that a life settlement is one possible option, but it is not the only option to monetize a life insurance policy to raise money for long term care.