• By Allan M Block Blogging Team
  • Posted April 18, 2016

Essentially Free Long-Term Care Insurance

Medical Planning

Today many people are engaged in “Medicaid Planning” with a certified elder law attorney.  What does this kind of planning mean and why do they do it?  In order to become eligible for Extended Medicaid coverage, an individual must not exceed their state’s minimum income & asset requirements[1].  This usually requires that a person transfer assets out of their estate in order to protect those assets from expensive long-term care bills.  Moreover, any gifts or transfers have a 60 month look back period regarding eligibilty (2) .

Most people are very familiar with the “Medicaid Spend-Down” scenario and how devastating this can be to most families financially.  Paying for the cost of long-term care of a loved one dollar-for-dollar is never a good option.  Many families are financially ruined because of the cost of extended care.  It is essential that every person carry out their estate planning advanced directives regarding long-term care services beforehand.  Otherwise, expenses resulting from extended care can easily run into the hundreds of thousands of dollars.

So what medical bills can be counted toward a spend-down?

  • Your own medical bills.
  • Your spouse’s medical bills.
  • Parent’s bills for their children’s spend down.
  • Bills of a child living with you.
  • Bills of a child who does not live with you, but whose medical bills you help pay for.
  • Past unpaid medical bills (sometimes up to 6 years old) for yourself or any of the people named above.
  • The part of any medical bill not covered by Medicare or private insurance.
  • Medical expenses (including insurance premiums) paid for you by certain public programs, for example, the  Elderly Pharmaceutical Insurance Program (EPIC) and the Child Health Insurance Program (CHIP).

Despite knowing about this potentially enormous liability, many people still do not purchase long-term care insurance because they see it as too expensive.  They just do not want to pay the premiums every year nor do they want to have to worry about if they can afford the policy if those premiums increase sometime in the future.  So instead, they decide to transfer the majority of their assets out of their estate to facilitate eligibility for Medicaid benefits in five years.  Having said that, there still remains the danger of a claim during the transfer period.  Often, attorneys recommend that the Medicaid Planning involve the purchase of a temporary long-term care policy with a five year benefit period in order to “bridge” the liability of the 60 month look back period as per the Deficit Reduction Omnibus Reconciliation Act 2005.  Once the look back period has expired, the client can cancel their coverage and avoid paying any future premiums.  This strategy however still costs money, typically $30,000 to $50,0003.  And furthermore, what happens if the client dies?

The following example solves this problem quite easily.

What if the client has the means to purchase a Single Premium Universal Life Insurance policy with a Long-Term Care Rider instead of the traditional LTCI policy in order to “bridge” the gap?  These contracts are often referred to as “Linked” policies because during the 60 month look back period the client not only has adequate long-term care insurance, but also has a guaranteed life insurance death benefit that is higher than the original deposit.  And what if the policy can be cancelled for a 100% return of premium after the 60 month look back period with no surrender charges?  Sounds too good to be true?  Well, several carriers currently offer linked products with guaranteed return or premium riders4.  Thus, the client can buy the insurance and keep it in force until such time as they no longer need it and their assets are fully protected.  This strategy completes the entire leveraged transaction at no cost to the insured.

EXAMPLE:  Jane is a 67 year old non-smoking female who purchases a single premium $150,000 Linked Universal Life Insurance policy with a Long-Term Care Rider to insure her liability while she waits for her assets to become Medicaid ineligible in 60 months.  The $150,000 single premium buys her $317,943 of life insurance and $580,566 of long-term care coverage from day one.  Assuming there are no claims, at the end of five years, she can surrender the contract and receive 100% of her premium back with no surrender charges.  The transaction is essentially a 60 month FREE loan with some very significant tax-free insurance benefits5.

Call us today if you would like additional information about this estate planning concept.

[1] Medicaid Eligibility vary from state to state

Deficit Reduction Omnibus Reconciliation Act of 2005                                                                      

3 LTCI premiums based upon age & policy benefits                                                                                                                                           

For more information or answers to your insurance questions, contact us at Allan Block Insurance Agency, www.ambins.com, located in Tarrytown, NY in the heart of Westchester County, a key business district near New York City.  We write auto, home, renters, condo, co-op, personal, business, life and group insurance for clients locally and in NYC, CT, NJ, PA, MA and many other states. The Professional Agency with the Personal Touch.