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• Does My Private Health Insurance or Health Maintenance Organization (HMO) Pay for Long-Term Care?
• Does My Medicare Supplemental Policy ("Medigap") Pay for Long-Term Care?
• Will My Disability Insurance Pay for Long-Term Care?
• How Can Life Insurance Help Pay for Long-Term Care?
• Accelerated Death Benefits (ADB)
• Life Settlements
• Viatical Settlements

Most forms of health insurance (such as the private health insurance or Health Maintenance Organization (HMO) you may have on your own or through your employer) follow the same general rules as Medicare. If they do cover long-term care, it is typically only for skilled, short-term, medically necessary care. Like Medicare, the skilled nursing home stay must follow a recent hospitalization for the same or related condition. Coverage in a Skilled Nursing Facility is limited to 100 days. Home care is also limited to medically necessary, skilled care. Custodial or personal care is never covered. However, most people who need long-term care need custodial or personal care.

If you receive your health care from an HMO, the plan may help you pay for some of the co-pays or deductibles that Medicare would otherwise impose (for example, the $128/per day for nursing home care for days 21 through 100), but they otherwise do not vary from Medicare's rules for what type of care is covered or for how long benefits are provided.

Medicare supplemental insurance policies (also called Medigap Insurance) are designed to cover some of the “gaps” in Medicare. These gaps refer to Medicare co-pays and deductibles. Medigap insurance enhances your hospital and doctor coverage, but does not extend to long-term care coverage. For the small portion of nursing home stays that qualify for Medicare coverage, a Medigap insurance policy may cover the daily Medicare copayment ($128/day for days 21-100). Medigap insurance is not intended to meet long-term care needs and provides no coverage for the vast majority of long-term care expenses.

Disability insurance is intended to replace some of the income of a working person who becomes disabled and can no longer work. Disability benefits do not cover either medical care or long-term care; they provide a partial salary replacement while you are unable to work. Most disability insurance policies do not provide any benefits once you are over age 65 – exactly when you are more likely to need long-term care.

There are several ways you can use your life insurance policy to help pay for long-term care. These include:

• Accelerated Death Benefits
• Life Settlements
• Viatical Settlements

Each of these is explained in more detail below.

An Accelerated Death Benefit is a life insurance death benefit paid in cash in advance, tax free. An Accelerated Death Benefit is a feature or rider included with some life insurance policies. It provides cash advances against the death benefit while you are alive. Sometimes you pay an extra premium to add this to your life insurance policy and sometimes it is included by the life insurance company for little or no cost.

There are different types of Accelerated Death Benefits, each of which serves a different purpose. Depending on the type of policy you have, you may be able to receive a cash advance of your life insurance policy's death benefit when:

• You are terminally ill;
• You have a life-threatening diagnosis, such as AIDS;
• You need long-term care for an extended amount of time; or
• You are permanently confined to a nursing home and incapable of performing your everyday Activities of Daily Living.

The amount of money you can receive from these types of policies varies, but typically the accelerated benefit payment amount is capped at 50 percent of the death benefit. Some policies, however, do allow you to use the full amount of the death benefit.

For ADB policies that cover long-term care, the monthly benefit you can use for nursing home care is typically equal to two percent of the life insurance policy's face value, while the amount available for home care (if it is included in the policy) is typically half that amount. For example, if your life insurance policy's face value is $200,000, then the monthly payout available to you for care in a nursing home would be $4,000, but only $2,000 for home care. Some policies may pay the same monthly amount for care, regardless of where you receive the care.

When you receive payments from an ADB policy prior to death, the amount you receive is subtracted from the amount payable to your beneficiaries when you die.

Important Considerations:

• If an ADBenefit feature is included in your life insurance policy when you buy it, it may help you obtain long-term care insurance policy coverage that you might not otherwise qualify for. Depending on the life insurance policy amount, there may be little or no health screening required, so if you had a health condition that might exclude you from being eligible for long-term care insurance, you could still obtain a long-term care insurance policy using your life insurance ADB feature.
• ADB policy payouts for long-term care are often more limited than the benefits you could receive from a typical long-term care insurance policy.
• The face value amount of life insurance may not be large enough to allow ADB payments sufficient to cover your long-term care needs. The benefit payments may be lower and the duration shorter than what is required to cover your long-term care expenses.
• Inflation protection is often not offered. If inflation protection is not included, the ADB payment may not be sufficient to cover your future long-term care costs. This means you would need additional means to pay for your care.
• If you want to leave an inheritance, you should consider whether this is the right option. If you use the ADB feature for long-term care, there may be little or no death benefit remaining for your survivors.
• This option may affect your eligibility for Medicaid. Be sure to check with your state Medicaid agency for more information.

Life Settlements give you the ability to raise cash by selling your life insurance policy. With a Life Settlement, you sell your life insurance policy for its present value. This option is usually only available to women age 74 and older and to men age 70 and older. The proceeds may be used for any reason, such as paying long-term care insurance premiums or paying for long-term care services directly.

Important Considerations:

• Little or no death benefit may be left for your survivors/heirs.
• No health screening is required; you may be in good or poor health.
• There may be tax liabilities on the proceeds of the sale.

A Viatical Settlement allows you to sell your life insurance policy to a third party and use the money you receive to pay for your care. A Viatical Settlement is only possible if you are terminally ill, which in this case generally means that you have a life expectancy of two years or less. A Viatical Company pays you an amount of money based on a percentage of the death benefit of your life insurance policy. The amount you receive is based upon your life expectancy. The Viatical Company then owns the policy and is its beneficiary. The Viatical Company also takes over payment of premiums on the policy. As a result, you get money to pay for care, and the Viatical Company receives the full death benefit after you die.

Unlike the Life Settlement, money you receive from a Viatical Settlement is tax-free, provided you have a life expectancy of two years or less or are chronically ill, and provided the Viatical Company is licensed in the states in which it does business.

Important Considerations:

• You must be terminally ill with a life expectancy of two years or less.
• You are not required to satisfy the health requirements for long-term care insurance.
• The policy will not pay a death benefit to your heirs.
• Less than 50 percent of applicants for Viatical Settlements are approved.

The National Association of Insurance Commissioners (NAIC) guidelines for the amount of the Viatical Payment that is appropriate, based on life expectancy are listed below.

NAIC Guidelines for Viatical Payments