Texas recently became the first state to pass a so-called “life settlement” law. The law allows seniors with life insurance policies to sell those policies to buyers in order to pay for long-term care expenses. Other states, including Florida and New York, have considered, or are considering, similar types of legislation.
Life settlement laws are designed to help states alleviate the budgetary burdens imposed by seniors who use Medicaid to pay for nursing home, assisted living, and other costs associated with long-term care.
The laws allows buyers to purchase life insurance policies from seniors at premium rates, typically a multiple of the policy’s cash surrender value. After selling their policies the seniors receive the payments that they can then use to pay for long-term care. The buyers are also obligated to continue paying the life insurance premiums as long as the policyholder is alive. After the policyholder dies, the purchaser receives the benefit payout.
As states wrangle with growing Medicaid budgets, the life settlement laws are viewed as a way to curtail the growing expense associated with long-term care. Seniors who qualify for Medicaid can use the program to pay for their nursing home expenses. With the life settlement laws, states seek to allow seniors to pay for those expenses on their own for as long as possible. Once the seniors sell their life insurance policies and then spend the money they receive for the sale, they can later apply for Medicaid once they have spent down their assets to the program enrollment limit.