Of all the problems in our complex health care system, long-term care funding may be one of the most complicated to fix.
First, you have a growing population of aging
baby-boomers who are entering the years when they need it but haven’t properly planned or saved for it. Second, it has risen in cost by double digits in the last five years, according to the National Council on Aging. And, last, there’s the payment system that is increasingly up to government sources: in 2013, that meant Medicaid which accounted for 51 percent of long-term care expenses - more than $155 billion - according to a Kaiser Family Foundation report.The result is that any cuts intended to fix other problems in the health care system run the risk of directly affecting seniors at their most vulnerable.Two weeks ago, the National Association of Insurance Commissioners (NAIC), advocated for another source of long-term care funds that had never been seriously tapped before, but could help save the Medicaid program – and taxpayers - millions: life insurance
policies. Specifically, a swap of life insurance for long-term care that was tax-free. The NAIC Long-Term Care subgroup issued a policy report
that included life insurance as a tax-free swap for long-term care for seniors who are struggling to pay for their post-retirement care.For those of us in the life insurance secondary market industry, this shift is tremendous. For years, we’ve been fighting the good fight, working to dispel the myths
that have loomed over this asset class. To help protect vulnerable seniors
in this stage of their lives, state insurance regulators put in place stringent consumer protections, including numerous consumer disclosures, disclosure of all offers, broker commissions, and alternatives to selling a policy.
Here are the facts about an industry that is growing in prominence:
The vast majority of life insurance policies that are issued never result in a benefit paid to beneficiaries. An astounding 88% of universal life policies are either lapsed or surrendered prior to a claim, according to statistics cited by the Life Insurance Settlement Association
.The life insurance secondary market is designed to help seniors obtain maximum value for life insurance policies that are almost certain to lapse or be surrendered.Life settlements pay seniors an average of 4 to 11 times what they would have received from the insurer for a surrendered policy, according to studies conducted by the US Government Accountability Office (2010) and the London Business School (2013).At GWG Life alone, we’ve paid seniors nearly $418 million to purchase their policies over the past 11 years. Had those seniors surrendered their policies back to their insurance company, they would have received a tenth of what they received through GWG Life. Related: The Answer to Your Clients' Long-Term Care May Be Their Life Insurance
As the only firm offering this kind of swap, GWG Life has launched the LifeCare Xchange Program
with solutions that include benefits exempt from Medicaid spend-down requirements that can be used in this way to pay for long-term care and other health care costs. For many seniors, a life insurance policy is the only source of income available to address this critical need.Until now, broker-dealers who lacked the resources or initiative to complete due diligence regarding life settlements have kept this important asset class “off the menu” for the advisors. The July endorsement from the NAIC is expected to change all that. Already, GWG Life has partnered with a growing number of advisors who understand that a life settlement is beneficial to seniors, as well as to their practice.These firms have done their diligence on the secondary market and on GWG and have authorized their advisors to introduce life settlements to seniors. Some advisors are holding local events to introduce the secondary market to new potential clients, as well as to other financial services professionals. We hope, for the sake of today’s seniors, that this momentum continues to grow.It’s important to note that life settlements wasn’t the only asset class discussed in the new report. Other options listed include traditional long-term care (LTC) insurance, hybrid life and annuity products, single premium permanent life insurance, annuity-long-term care products, and impaired-risk payout annuities. However, while traditional LTC insurance was one of the most popular products among seniors only a decade ago, rising costs have shifted that trajectory completely. According to the NAIC report, traditional long-term care insurance sales fell from 754,000 policies in 2002 to just 129,000 in 2014. As well, while more than 100 carriers offered LTC insurance in 2002, by 2014, only about a dozen insurers were continuing to offer LTC products. With LTC insurance options dwindling fast, recognizing life settlements as a viable, reliable alternative is more vital than ever.At GWG Life, our mission has always been to help consumers and the financial services industry to understand life settlements and the unique value they can offer to seniors, especially to fund the rising costs of long-term care and general healthcare. The NAIC's endorsement of life settlements as a way to pay for long-term care—and the fact that the committee’s report specifically cited GWG Life’s long-term care benefit plan that we introduced to the market more than a decade ago—feels a lot like a big win we’ve been fighting for. The best part of all is that the real winners are those who are the most vulnerable of all: seniors who are in desperate need of a source of income to fund the looming costs long-term care. Luckily for them, the life insurance secondary market is poised and ready to help.