Eldercare Funding Options - Part II

The following article is Part II in a series of V on Eldercare Funding Options by Patricia Grace

Life Settlements

Most seniors rely on equity in their homes to fund retirement and then assisted living and long term care. For those forced to sell their home today, the economy could be costing them money—if they are even able to sell in a time frame that can address their needs. For many facing a health crisis that requires a move out of the home; waiting months and months to sell a home in a down market might not be an option they can afford.

Seniors typically sell their homes first when looking to fund retirement living or long-term care. But today, values are down, so selling could translate into a loss-- or more money later if you wait. On top of that, selling a home is taking much longer now, sometimes more than a year.

This is sobering news for seniors trying to ride out the bad times and regain that value later. But waiting is not always possible, especially when assistance with activities of daily living is needed now, not three years from now.

According to a MSN Money.com Market Watch report (March 28, 2008) “a sixty five year old couple retiring now would need more than $300,000 set aside just to pay for health care costs over twenty years and would need $550,000 if they were to live into their early nineties.” Particularly alarming, according to the report, is the fact that these numbers, “haven’t factored in the costs of nursing homes, assisted living facilities or home health aides—and those costs are staggering!” The reality is that very few people will have half a million dollars to cover health care costs-- without even accounting for the costs associated with long term care and retirement living.

So what is someone to do if they want or need to move into assisted living, independent living or even a long-term care situation soon? One option might be a Life Settlement, quickly becoming a popular financial tool to fund senior housing options. A Life Settlement is an alternative way for seniors to tap into an existing asset to generate liquidity to cover immediate needs. The seller of the life insurance policy gets a lump sum payment—and since it is not a loan, the funds are unrestricted and require no repayment. The gains of a Life Settlement option are tax deductible if applied to retirement living or skilled nursing care.

The definition of a Life Settlement: the sale of a life insurance policy by the policy holder while still alive to an institutional investor that will pay a lot more for the policy than the cash “surrender” value. And, because life insurance values are guaranteed and disconnected from the economy, there is no fluctuation, as is the case with real estate and stocks.

“In the face of falling home and stock values, rising inflation, and depleted savings, many people we are meeting with are taking a close look at the Life Settlement option because it helps a family preserve long-held assets, such as a home, until it is more convenient to sell. It is not complicated with transactions often completed in 30 to 60 days,” explains Chris Orestis, President Life Care Funding Group, a firm that specializes in funding programs for senior housing and long term care. “With billions of dollars worth of life insurance owned by people older than 65 today—tapping into Life Settlements as an alternative funding option for senior housing and care is gaining serious interest,” he said.

Life settlements pay seniors an average of 300-500% more than the cash
surrender value of a policy. Since almost 9 of 10 life insurance policies
issued are lapsed or are surrendered, according to a leading international
actuarial firm, life settlements are a valuable option for seniors.

As seniors face losses in income and value because of declines in stocks
and home prices, many are not able to maintain their life policies.
According to Doug Head, Executive Director of Life Insurance Settlement
Association (LISA), "This legislation empowers consumers who would
otherwise lapse or surrender their valuable life insurance policies."

According to Mr. Head, "Life insurers are taking taxpayer funds while engaging in self-interested, protectionist conduct which deprives policyowners of their property rights in life insurance. In today's rough economy, consumers, not carriers, should gain the full value of policies." Established in 1994, the Life Insurance Settlement Association is the oldest and largest trade organization in the industry. Its goal is to promote the development, integrity, and reputation of the life settlement industry, and to promote a competitive market for the people it serves.