The growing life settlement industry offers to buy life insurance policies and continue to pay the premiums in full, in order to help clients cover the cost of long-term care.
"Many people are overwhelmed by long-term care costs, which are not covered by typical health insurance plans," said Michael Gilfix, an elder law attorney in Palo Alto. "Life settlement firms offer to help, but the industry is still relatively small and not rigorously regulated."
By selling one's policy to a life settlement company, it is possible to get cash flow from a policy that otherwise does not have an immediate cash value. The policyholder gives up ownership of the policy but receives money to use for long-term care expenses. In addition, the policy is no longer considered an asset that can interfere with Medicaid/Medi-Cal eligibility.
"Since you forfeit ownership of the policy and lose its value, life insurance settlement is more appropriate for people who do not have dependents or a spouse who will need the support," said Gilfix.
The value of a policy is based on calculations such as the policyholder's age, medical history and the value and type of the policy. Most people receive somewhere between 20 to 45 percent of the policy's value, but the rate can be higher or lower.
The life settlement industry is still small, with companies like The Lifeline Program converting only a few hundred policies each year. The industry is also relatively unregulated, and only a few states have enacted regulations, including California.
The office of Gilfix & La Poll can refer interested individuals to professionals who can advise about life settlements.