New Option For Long Term Care Planning For Texans


lifeline_lapsed_info_image_300As of January 1, 2014 all of Texas HB 2383 is law in the Texas.

HB 2383 is the law that allows Texans to use their Life insurance policies to purchase “Life Settlement” contracts to fund Long Term Care expenses if they are not able to perform all of the Activities of Daily Living.

HB 2383 is an improvement over the restrictions imposed by Medicaid for funding Long Term Care expenses in Texas.  However, it is not a perfect answer.

In this post, I want to warn Texans of some of the limitations that still exist.

INSIDE THE NUMBERS

One of the most common facts published by both the insurance industry and the federal Department of Health and Human Service is that close to 7 out of every 1 Americans, over the age of 65, will need Long Term Care sometime in their life.

Fewer than 7% of the population have insurance specifically for Long Term Care.

The other 93% of America must do one of the following when they need help.

  1. Pay for Long Term Care services out of their retirement savings
  2. Rely on family and friends to help
  3. Submit to Medicaid requirements and limitations

WHAT BENEFITS COME FROM THE NEW LAW IN TEXAS?

Whereas suitability restrictions used to limit purchase of traditional LTCI to people in the upper middle incomes or higher, TX HB 2383 gives more access to private pay Long Term Care services to people who do not earn 6 digit incomes each year.

People who earn less than the federal poverty level, may still have to rely on government programs like Medicaid, but middle-income Texans now have an option.

The new law allows Texans, with life insurance policies greater than $10,000 to sell a portion of them for a “Life Settlement” contract to pay for their Long Term Care expenses, with the following restrictions.

  1. Proceeds from the “Life Settlement” account have to be held in trust by a 3rd party to be used to pay approved Long Term Care expenses.
  2. A minimum amount of the policy must remain as a death benefit to pay final expenses when the insured dies.
  3. If the insured dies before the full amount of the “Life Settlement” account is spent, the balance that is left in the account must be paid to the insured’s named beneficiary or estate.

LIMITATIONS

This new option, for Texans, is better than relying on Medicaid to take care of you during your senior years.  If you exercise it, your life insurance is not included in your Asset Test if you do need Medicaid’s help with Long Term Care.

However, if you do elect to use your Life insurance as part of your planning for retirement, keep in mind the following warnings.

  1. “Life Settlements” are not the same as true LTCI or existing LTCI or Accelerated Benefit riders that exist today.  There is more paper-work involved.  They require you to actively shop for and contract with a “Life Settlement” company, also known as a “Viatical” company.
  2. TX HB 2383 only allows “Life Settlements.”  They are not guaranteed, like a traditional LTCI policy or rider is.
  3. TX HB 2383 is only a law.  It can be changed by a future TX legislature and governor.  Traditional LTCI is a guaranteed renewable contract.  That means that the only thing that an insurance company can change is the premium.  The benefits of the policy cannot be changed by the whims of future politicians.
  4. Not all retirees need Life insurance.  Before you elect this as a retirement planning tool, decide if you even need life insurance.
  5. Although “Life Settlement” contracts are often greater than the cash surrender value of a life insurance policy, they are always less than the policy’s potential death benefit.
  6. The death benefit you calculated for your current plan may not be sufficient to pay for all of your future LTC needs.

FIN

In my opinion, TX HB 2383 is a step in the right direction.  It allows more people to plan for future Long Term Care expenses without relying on Medicaid.  However, it is still not a complete solution.

Traditional LTC insurance policies are still better options, but they can be more expensive.  If you life in Texas and are looking for a lower cost option, you may want to look into your options with Life insurance.  Just keep in mind that there are several variables that you will have to consider.

I keep seeing the figure 40%.  The Texas legislature assumes that TX HB 2383 will save the treasury of TX approximately 40% of the cost of Medicaid.

Also, it is assumed that 40% more Texans will elect to keep their Life insurance plans and exercise their new rights under TX HB 2383 than would have lapsed their plans in order to qualify for Medicaid under a “spend down” program.

Although TX is the first state to establish a plan that allows Life insurance plans to be used for LTC planning, other states are considering similar laws.

Life Insurance 2

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