When people apply for Medicaid, known as Medi-Cal in California, they have to be able to prove that they do not own more than the specific asset limit. If they qualify, Medicaid will then pay for their health and long-term care expenses. Those who don’t qualify for Medicaid and who need to transfer to a nursing home or extended care facility, or who require other types of long-term care, will have to pay for these expenses privately.
In an attempt to mitigate the long-term care Medicaid expenses, Texas recently became the first state to pass a “life settlement” law. Other states, including California, New York, and Florida, have or are considering similar types of legislation.
Life settlement laws allow people to sell their life insurance policies to investors. The investors purchase the insurance policies at a premium, sometimes as much as 10 times the cash surrender value of the policy. After purchasing the policy, the seller can then use the funds to pay for private long-term care expenses. The buyer agrees to continue making all required premium payments and then, upon the death of the seller, receives the life insurance payout benefits.
The legislation is aimed at preventing people from spending down their life insurance cash surrender value in order to qualify for Medicaid. It also allows seniors to privately pay for any necessary long-term care expenses without having to apply for Medicaid, a program primarily paid for by the individual states.
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