States trying to increase life insurance options for older residents

These days, many older Americans may be having financial difficulties as a result of the recent economic downturn and might therefore experience difficulties with regard to simply meeting their monthly costs. As a consequence, a number of states across the country are now trying to make it easier for them to find solutions to these problems by leaning on their life insurance policies.

States including Texas, New York, California, Florida, Kentucky, Louisiana, Maine and New Jersey have either recently introduced bills that allow older Americans the ability to sell life insurance policies to help them pay for healthcare as they advance in years, or already signed them into law, according to a report from the Wall Street Journal. The reason for this, in general, is that giving seniors the ability to essentially cash out life insurance policies to cover other long-term healthcare costs may reduce the burdens for state Medicaid programs on which many might have to lean if they can't afford such treatment otherwise.

For instance, in Texas, about 27,000 people statewide apply for Medicaid to cover long-term care costs every year, the report said. Of those, about 10,000 have life insurance policies worth $75,000 or more, and if just 1,000 of those people sold those policies to cover costs, it could save the state about $20 million annually on Medicaid costs.

And while many states allow their residents to sell life insurance policies already, the purpose of the laws seems to be promoting their ability to do so while also putting in place requirements for how the funds they receive from such a sale can be used, the report said. In the case of Texas' new law, for example, the funds must be deposited in a bank account that can only be used for long-term care.

“This focuses on middle-class policyholders with term coverage worth $100,000 on average,” Chris Orestis, chief executive of Life Care Funding LLC of Portland, Maine, told the newspaper. “They're not wealthy enough to pay for long-term care for a long time, and they're not poor enough to qualify for Medicaid right away.”

Companies issuing life insurance policies may want to prepare for many regulatory changes in the various states in which they do business, as more could come down from lawmakers in the future, and compliance with these rules is of the utmost importance.