Financial resources

The diagnosis of a serious or terminal illness can be financially devastating for an individual and a family. Often the patient can no longer work, and the medical bills keep mounting. This can quickly deplete a person’s entire life savings.  Below are four alternative ideas for tapping into financial resources. 

Long Term Care Insurance

Traditional insurance and Medicare do not pay for long term care. If the patient has purchased a long term care policy this may offset some or all of the cost of long term care. These policies vary widely, but usually have a limit on the dollar amount or number of years you can receive the benefit.

Some policies will cover care in the patient’s home, while others will only cover care in a facility. Depending on the LTC company, the patient may be able to hire independent providers or family members to care for them. Other companies will require the patient to use a certified agency or licensed providers.   Some of the services that may be covered include: adult daycare, home care, home modifications, assisted living and nursing home. 

Accelerated Death Benefit

Some life insurance policies have an accelerated death benefit (ADB) rider. This allows the insured person to use some of the policy’s benefit prior to dying. This advance is deducted from the amount the beneficiaries will receive at death. There are restrictions on how the money can be used. Generally it can be used for long term care and medical expenses. 

Reverse Mortgages

For a patient who is a homeowner and 62 years old or older a reverse mortgage may be an option. With a reverse mortgage the patient can tap into the homes value without having to leave the home or make payments. The funds can be distributed by:

  • lump sum
  • fixed monthly installments
  • line of credit

The line of credit is the most popular of the choices and often will not be considered an asset for Medicaid eligibility. 

The amount of money received will be determined by the homes value, the age of the borrower and current interest rates. There are no restrictions on what the money can be used for. Another benefit is that the loan does not have to be repaid until the last borrower dies, sells the house or move out.

The reverse mortgage is not for everyone. For both spouses to be listed on the reverse mortgage deed they must both be 62 or older. If both spouses are not listed, and the spouse on the mortgage deed dies first, the surviving spouse will be required to repay the loan in full or be evicted. 

Viatical Settlements

 

Because a life insurance policy is personal property, it can be sold. A viatical settlement sells the life insurance policy of a person with a terminal or life threatening illness, and a life expectancy of six months to five years to a third party for cash. There are no restrictions on how this money can be used. The purchasing party then becomes the beneficiary and takes responsibility for paying the premium.  

The insured are normally paid between 50 and 80 percent of the face value of the policy. This amount is dependent on a number of factors such as life expectancy, current interest rates and the cost of paying the premium. 

Due to HIPAA the money received from a viatical settlement is usually free from federal income tax. On the other hand, earnings may impact eligibility for some means based entitlement programs such as Medicaid.