Texas Governor Rick Perry signed legislation recently allowing Texans to more easily use their life insurance policies to help pay for the costs associated with long-term care. These so-called “life settlements” give people with life insurance policies the ability to sell those policies to investors at a discount.
The law allows Texas residents who are planning on applying for Medicaid to sell their life insurance policies. The policies can sell for as much as 10 times the cash surrender value. The company that buys a life insurance policy will then continue making premium payments and, upon the death of the policyholder, will receive the insurance benefit. Texas is the first state to pass such a law, though New York, California, Florida, and several other states are currently considering similar legislation.
The law allows seniors to receive money for their life insurance policies so that they can privately pay for long-term care instead of relying upon Medicaid.
Under Medicaid guidelines, anyone seeking to apply for the program must “spend down” their assets before they can become eligible. Medicaid considers the cash surrender value of any life insurance policy to be an asset. So, if an elderly person wants to apply for Medicaid and have a life insurance policy, he or she would have to spend the cash surrender value before becoming eligible.
The legislation is targeted at seniors who dispose of their life insurance policies in order to qualify for Medicaid, a program paid for by the states and the federal government. Legislators hope the law will reduce the state’s Medicaid bill by allowing seniors to pay for long-term care on their own.