Texas Seniors Funding Medicaid With Life Insurance Policies

The Texas legislature recently passed a bill which enables Texas residents to sell their life insurance policies to fund their Medicaid long-term care. Third-party companies typically buy the policies from seniors concerned about how to financially fund their long-term care needs in their later years and cash them in after the seniors die, keeping as much as 45 percent of the policy.

Texas Gov. Rick Perry passed House Bill 2383, allowing Texas residents who hold a life insurance policy of at least $10,000 to sell it via a life settlement. The money typically goes directly into a nonrefundable account from which long-term care expenses are paid, not directly back into the pocket of the senior. Texas Medicaid does not include life settlement proceeds in asset assessment while determining an individual’s Medicaid nursing home benefits eligibility. A similar bill is being considered in other states, including Florida, California, Louisiana, Kentucky, Montana, North Carolina and New Jersey.

The seniors who are considering selling their life insurance policies are typically doing so because they have been told that Medicaid coverage qualifications demand it, say elder care advocates. But, they caution, not all assets are counted. While a senior’s assets are not to exceed $2,000 for eligibility, home ownership, a car, and personal property are exempt. So is a life insurance policy; the “cash value” is countable, if the total face value exceeds $1,500. The “cash value” is what the life insurance company would pay out if the policy were cancelled, while the “face value” is what the beneficiaries would get when the senior died.

Is a life settlement the way to cover your long-term care needs? It depends on the situation. It may not make sense to sell your policy. Elder law attorneys have been assisting clients with private intra-family life settlement transactions for years. In these transactions a child will typically purchase his or her parent’s life insurance policy for its cash value in order to qualify for Medicaid. As long as the policy is sold for at least its cash value, Health and Human Services will not impose a transfer penalty. While the new law is not particularly useful, it draws attention to an important Medicaid planning strategy. .

Before making any decisions regarding paying for long-term care, consult with an elder law attorney to explore your long-term options.