New bipartisan legislation could go a long way toward helping seniors pay for late-life care through favorable tax changes, say officials with the Life Insurance Settlement Association.
The trade association is lobbying for the “Senior Health Planning Account Act,” introduced by Rep. Brian Higgins, D-NY, and Rep. Gregory Steube, R-Fla. The bill would allow seniors to sell their life insurance policies – known as a life settlement – and use the proceeds, tax-free, to pay for their health care costs.
“Seniors are the only group of Americans who are not eligible for existing tax programs for contributing their own resources to help pay for health care,” said Michael Freedman, chair of LISA’s Public Policy Council.
The bill has been referred to the House Committee on Ways and Means.
If passed into law, seniors will be able to roll over their life insurance sale proceeds, tax-free, into Senior Heath Planning Accounts, which would be dedicated to paying health care costs for themselves and their spouse.
The accounts would be exempt from federal income taxation, similar to existing federal tax programs that encourage younger working Americans to invest in their own health care.
'Will Increase Awareness'
Current law already provides that the proceeds from the sale of life insurance—known as life settlements—are tax-free, but only if the policies are sold after the policy holders are seriously ill, by which time they often no longer own their policies.
The bill “will increase awareness that life insurance policies are an asset that seniors don’t have to lapse or surrender back to insurance companies," said Bryan Nicholson, executive director of LISA. "Life settlement proceeds will provide billions of dollars of living benefits for seniors to use for their own health care.”
The legislation would even result in substantial Medicaid savings, LISA officials say, because private resources would be used to pay expenses otherwise borne by taxpayers. The act also is expected to generate substantial tax revenues.
Life insurance policies are among many families’ most valuable assets, with 138 million individual life insurance policies, with a total face amount of over $12 trillion, in force in 2018, according to the American Council of Life Insurers.
Yet fewer than one in ten policies (by face amount) ever pay a death benefit, with over 90 percent ending in a lapse or surrender.
High Lapse Rate
In 2018, 7.7 million policies, with an aggregate face amount of $570 billion, lapsed, for which policyowners received nothing, LISA noted. That lapse rate that was 40 percent higher than just five years earlier, and, for retirees, the lapse rate is 25% higher than for policyholders generally.
Seniors who sell their life insurance policies receive significantly more than if they terminate their policy back to their insurance company.
“Policyowners who sell their policies receive a lump sum payment that is generally four or more times greater than if they lapsed or surrendered their policy, according to government and university studies," the National Association of Insurance Commissioners said in a 2017 report.
The NAIC endorsed life settlements as “one option seniors might use to generate resources to pay for their long-term care needs,” in a 2017 report focused on private market options for financing long-term care.
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.
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