Can Nursing Homes Take Your Life Insurance From Your Beneficiary?
Life insurance is one way that people can choose to help their family members cover end-of-life expenses, but you may be wondering, can a nursing home take your life insurance policy payout from your beneficiary if you have outstanding costs?
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Nursing home care is often one of the largest expenses people experience towards the end of their lives. With costs exceeding $8,000 a month, many people struggle to afford the costs, especially on a long-term basis. Life insurance is one way that people can choose to help their family members cover end-of-life expenses, but you may be wondering, can a nursing home take your life insurance policy payout from your beneficiary if you have outstanding costs?
The short answer is no, if you specify a beneficiary, the nursing home cannot take that money. We're here to break down how life insurance can benefit you and your loved ones after your death and answer any of these outstanding questions.
Does Medicare or Medicaid Cover Long-Term Care?
Long-term care can be extremely costly, and while nearly half of older adults will need some type of long-term care at the end of their life, very few have a plan in place for how to cover these high costs. While many assume that Medicare will help to cover these expenses, that is not the case. Medicare will cover only short-term stays in care facilities, but for anything more permanent that extends beyond severe medical assistance, this is not covered under your Medicare insurance.
Medicaid benefits will cover long-term stays, but only for those families with very limited assets. You have to prove financial hardship in order to qualify, so there is a large gap of people left with no viable options for government support for end-of-life care.
If you do qualify for a long-term care facility as a Medicaid recipient, the state can seek restitution after you die but only in special circumstances in which you do not have a named beneficiary. If you have not named a beneficiary, or you outlive your named beneficiaries, creditors can collect payment from your estate. This is why it's always important to talk to your insurance company and ensure your beneficiaries remain up to date.
Can Life Insurance be Used to Cover the Cost of Long Term Care?
As you may or may not know, there are many different types of life insurance, and how these can be used to cover costs while you are still alive vary greatly. Below we will break down the different types of life insurance policies, how the payouts work, and how you may or may not be able to use these policies to cover the cost of a nursing home.
Term Life Insurance: Term life insurance is insurance that pays premiums for a specific term (usually 10, 20, or 30 years). These types of policies are some of the most common and are typically purchased to cover large expenses like childcare, college tuition, or mortgages in the case of your untimely death. These policies have no cash value component, meaning that you can't pull money from the policy before your death.
Whole Life Insurance: Whole life insurance lasts for your whole life, and does come with a cash value component, which makes this a much more costly option, but offers additional flexibility. If you have one of these policies, the cash value acts as an investment account that you can pull some money from, as needed. The amount you earn over time and how much you can pull will depend on your individual policy and how long you've had it. This type of policy typically makes more sense for younger people who want to lock in a fixed rate and invest their money long-term. You can also borrow against these types of policies, but if you don't pay the money back before your death, they will deduct this amount from the amount paid out to your beneficiary.
Universal Life Insurance: This is a type of whole life or permanent life insurance that comes with variable interest rates and is typically used as a method to save for the future. A portion of the earned interest can also be used to pay the cost of your insurance premiums.
Cash Value and Medicaid Eligibility
If your life insurance policy has built up a cash value, that can count against your Medicaid eligibility if the accumulated cash value is over a certain amount, usually about $1,500.
Final-Expense Insurance: This type of insurance is designed to help older adults or those with failing health assist their loved ones in covering the actual cost of their death such as costs of burial or cremation, transporting their body, or the cost of the funeral. It is a type of permanent life insurance but does not come with a cash value as it is usually purchased later in life. This type of health insurance also does not require a medical exam, but usually comes with much higher premiums.
Using a Long Term Care Coverage and Riders to Cover Nursing Home Costs
Long-Term Care Insurance is a type of insurance designed specifically to help pay for the costs of long-term care. There are traditional and hybrid long-term care insurance options, though both are usually more expensive than traditional life insurance. With the hybrid option, if you never use long-term care, you are eligible to get some of that money back. This option can be used to cover both nursing home expenses and at-home care, but usually will only be paid out to licensed professionals.
There is also the option of adding a long-term care rider to your existing life insurance plan. These are called accelerated death benefits. Typically, to qualify for one of these riders, you must be unable to perform the two of the six acts of daily living either temporarily or permanently. If you meet these rider requirements, the cost of coverage will be used by your insurance company from your life insurance payout.
| Six Acts of Daily Living |
|---|
| Bathing |
| Dressing |
| Eating |
| Transferring |
| Toileting |
| Continence |
As you can see, there are many different types of insurance, and while some can be used to help pay for nursing home costs, there is no one-size-fits-all life insurance policy. You’ll want to consult with your life insurance provider about what kind of care is covered under your insurance and if you do opt to use your life insurance policy to pay for the cost of nursing home care, you’ll want to make sure you understand how that will affect your death benefit.
If you are merely looking for a life insurance policy that will cover this eventuality, PolicyScout can help you find the right type of insurance for your needs.
What to Do if Your Life Insurance Policy Won’t Cover Long-Term Care
So now we come to the question of what to do if your life insurance policy does not cover any long-term care costs and you don’t have other ways to pay for this very costly service. Can the nursing homes take money from your death benefit to pay the bills?
The good news is, that if you have indicated a specific beneficiary such as a spouse, parent, child, or other family members, the long-term care facility cannot take this insurance money. While your beneficiary can opt to use the life insurance death benefit to pay any outstanding bills, this would be left up to them and how they choose to use the money.
If you would like to ensure that the financial burden of your long-term care and funeral does not fall on the shoulders of those you are leaving behind, you can specify in your life insurance policy the nursing home or funeral home as the beneficiary instead of a family member.
Some people also choose to direct the money into a trust with specific instructions as to how it should be used as extra insurance after they are gone. Ultimately, it is completely up to you how you would like to handle the eventual payout and to whom you would like it to go.
While there are many complications and considerations to make when looking forward to the end of your life and death, there are ways that you can be prepared and ensure that your loved ones are well taken care of and not saddled with excess costs.
Some people opt to merely start a separate investment account to cover end-of-life costs that are not connected to a life insurance policy. What the correct choice for you is will entirely depend on your individual situation.
Your Life Insurance Payout is Safe, No Matter What
The main takeaway, however, is that no matter what type of policy you decide to go with, you can rest assured that that money will not be taken away from your beneficiaries no matter how much debt you rack up with a nursing home or care facility. While there are many different types of life insurance policies and options out there, they are all protected from this eventuality.
Have more insurance questions?
PolicyScout is here to help. With plenty of learning resources for Medicare coverage and life insurance policies, or call one of our licensed agents today about getting affordable coverage for your future.