Life insurance can be a tricky asset in a nursing home Medicaid case. Depending on the specific numbers and details if your case, you may be able to keep it in tact or the cash value of the policy might make it impossible to keep in its current form while qualifying a parent or spouse for nursing home Medicaid. In cases like that most people are faced with surrendering the policy for its cash value. That was generally the last option because you are only going to receive the cash value of the policy and then the cash value was subject to same resource rules as every other asset. Fortunately, there is now a new option that is an improvement over simply surrendering the life insurance policy. That option is called a life insurance settlement.
Life insurance settlement contracts are a new development in Texas nursing home Medicaid regulations and when used properly can be a powerful piece of the asset protection puzzle. A life insurance settlement allows a parent or spouse to sell a life insurance policy for a lump-sum payment that is less than the expected death benefit but more than the available cash value. Although the proceeds of the life insurance settlement are not protected from nursing home costs, those funds open up asset protection opportunities for other assets.
A life insurance settlement contract has to contain certain features in order to be eligible for exclusion for nursing home Medicaid eligibility purposes. If your life insurance settlement contract does not contain every one of these features as provided in the regulations then your life insurance settlement contract is not going to work as you might expect it to. In order to be excluded for Texas nursing home Medicaid eligibility purposes, a life insurance settlement contract must:
- direct the proceeds from the transaction into an irrevocable, state or federally insured account;
- specify that the proceeds be used for payment of LTSS expenses;
- specify the total amount payable for LTSS expenses; and
- indicate the amount of the reserved death benefit and the irrevocable beneficiary.
If your life insurance settlement contract does not meet all four of those requirements then it will not be excluded for eligibility purposes and the funds are subject to treatment as a resource just like any other bank account.
The life insurance settlement contract is just the first part of the equation. The Texas nursing home Medicaid regulations also dictate the required features of the account where the proceeds go in order to be excluded from the asset eligibility test. If you do not meet all of the requirements of the contract itself as well as the account where the funds go then you are not going to eligible to exclude the funds from the resource eligibility test. Coming up soon we are going to look at the requirements of that account.
The availability of strategies such as this are a reminder that when a parent or spouse enters a nursing home and you know you will need to qualify for nursing home Medicaid at some point in the future you should consult with an experienced Medicaid attorney to find out what your options are. If this was an option in your case and you just surrendered the insurance policy without even knowing about this you could have just lost tens of thousands of dollars without even knowing it.