ALTCSPlanning.net

   Life Insurance

Life insurance can be a tricky subject with ALTCS.  There are many rules governing whether or not life insurance is excluded or counted when determining ALTCS resource eligibility.

Let's explain some of the reasons why life insurance can be complex. 

First of all, life insurance can be either term insurance or whole life insurance.

1. Term insurance is typically a death benefit only with no accumulation of cash surrender value (CSV) and is an exluded resource regardless of the total face value.  Exception to this rule is when term insurance is part of a universal life insurance package, which means that it has some sort of investment account attached to the policy.  In this case, the term insurance typically has no surrender value, but the investment portion of the account is surrenderable and therefore, available as an asset for ALTCS eligibility.
   
2. Whole life insurance is a death benefit that earns a CSV over the life of the insured.  The insured pays a premium during his "whole life" or during a set period of time (up to age 85).  While the policy is in force, should the insured die before he's accumulated the face value (FV) of the policy, his beneficiaries receive the face value.  During his life he may borrow against or cash in his policy and the insurance company will pay the CSV at his request.    

Secondly, insurance companies can be mutual or stock companies.  Mutual companies may pay their whole life insured a dividend annually based on that year's profit.  Stock companies typically do not pay dividends on their policies.    

Thirdly, the insured may take their dividend in four different forms:

1. cash,
   
2. as a dividend addition which purchases additional insurance that earns CSV,
   
3. as a dividend accumulation which is set aside like a savings account and earns interest, or
   
4. as payment toward the next year's annual premium. 

• If the cash option is chosen, the check received is counted as income in the month of receipt. 
• If the dividend addition is chosen, the additional insurance and cash surrender value are excluded if the policy itself is excluded. 
• If the dividend accumulation is chosen, then the accumulation account is always a separate countable asset , even if the policy itself is an excluded asset. 
  
• If the payment toward next year's premium is chosen, it doesn't affect ALTCS eligibility at all.    
  

ALTCS must determine the total FV of all life insurance policies owned by the applicant and if married, their spouse.  If the total FV of all policies owned by the applicant on each insured is $1500.00 or less, then the policies are an excluded asset regardless of the CSV (unless the CSV includes a portion that is the dividend accumulation account).  If the total FV of all life insurance policies owned by the applicant on each insured is more than $1500.00, then the policies' total CSV is counted toward the current ALTCS resource guidelines.

If you have residents or patients who are unsure how their life insurance policies will affect their ALTCS eligibility, please send them to ALTCS Planning.net for their initial evaluation.