When Chris Orestis founded Life Care Funding in 2007, he helped to pioneer what some advisors regard as an elegant solution for people who lack long-term care insurance but still have life insurance policies.
Life Care Funding offers life settlements — transactions that allow life insurance policyholders to sell their policies at a discount in the secondary market. After buying the policy, Life Care Funding assumes responsibility for the premium payments and eventually collects the death benefits.
Where does the long-term care insurance enter the picture? Instead of a cash payout, Life Care Funding offers the individuals selling their life insurance policies prefunded irrevocable benefits accounts. Life Care Funding then hires professional administrators to oversee these accounts and make monthly payments as needed to long-term care providers.
ALTERNATIVE FUNDING SOURCE
Interest in this approach has been rising significantly. For the past four years, Orestis says, his company’s revenue has doubled and he expects "to continue that trajectory" this year. In 2013, Life Care Funding sold a majority equity stake to the publicly traded Resource America, based in Philadelphia.
In offering an alternative funding source for long-term care, Life Care Funding provides a product that advisors may potentially recommend to clients who have made no other arrangements and whose assets could be decimated if they needed to pay for such services.
The specific terms that Life Care Funding offers in exchange for the policy hinge on a policyholder's health and the value of his or her death benefits. Usually, the client receives 35% to 65% of a policy's death benefit. Families themselves decide a schedule for dispersing the long-term care benefits, and they may use them to pay a wide variety of long-term-care providers, including home care, assisted living, skilled nursing, memory care and hospice providers.
Financial advisors, elder law attorneys and accountants are among those recommending the product to clients, Orestis says.
WHEN IT WORKS
The Life Care Funding solution works well if a client has a life insurance policy with a face value below $250,000 and needs the assets for long-term care as soon as possible, according to Bruce Gardner of Bruce Gardner Insurance & Investments in Austin, Texas.
Gardner, who sells insurances and consults with elder law attorneys and their clients, says the Life Care Funding option offers a higher rate of return on the death-benefit settlements and faster turnaround time than if an individual tried to make a traditional life-settlement transaction and use the proceeds for long-term care. "This is useful when it's too late to buy LTC insurance" and time is a factor, Gardner says. The turnaround time is about 45 days, he says.
Nancy Skeans, a financial advisor with Schneider Downs Wealth Management Advisors in Pittsburgh, which has $950 million in assets under management, says she is somewhat leery of the Life Care Funding approach, noting that "you may be able to stretch your dollar further if you don’t have a middleman."
She does, however, sometimes recommend that clients consider life insurance policies with long-term care riders. And in cases where a client with life insurance is diagnosed with a fatal illness, she will investigate if he has the option in his policy to tap death benefits to pay for long-term care needs.
Miriam Rozen is a reporter for Texas Lawyer who writes about financial planning and services.
This story is part of a 30-day series on better serving seniors.