The Life Insurance Settlement Association (LISA) today endorsed H.R. 5958, the “Senior Health Planning Account Act”, introduced by Rep. Brian Higgins (D-NY) and Rep. Gregory Steube (R-FL).
WASHINGTON, DC, March 3, 2020 – The Life Insurance Settlement Association (LISA) today endorsed H.R. 5958, the “Senior Health Planning Account Act”, introduced by Rep. Brian Higgins (D-NY) and Rep. Gregory Steube (R-FL). This bipartisan legislation will help millions of seniors generate billions of dollars for their health care needs through the sale of their life insurance policies – known as a life settlement – by permitting them to use the proceeds, tax-free, to pay for their health care costs.
The Senior Health Planning Account Act will help seniors plan and pay for their health care costs, including long-term care expenses, before they hit.
Under the Act, 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.
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 Senior Health Care Account Act builds on current law to provide seniors needed flexibility to plan for future expenses.
The Senior Health Planning Account Act is expected to result in substantial Medicaid savings because private resources would be used to pay expenses otherwise borne by taxpayers. The Act also is expected to generate substantial tax revenues.
“We applaud Representatives Higgins and Steube for creating a way for American seniors to deal with the crushing costs of health care in retirement,” said Chris Conway, Chair of LISA’s Board of Directors, adding “This is an innovative private sector solution to address the escalating costs of health care burdening not only American seniors, but state and federal Medicaid budgets.”
“H.R. 5958 will allow millions of seniors to use life insurance assets they already own to help provide for their own health care in retirement,” said Michael Freedman, Chair of LISA’s Public Policy Council. “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,” added Freedman.
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. 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.
In 2018, 7.7 million policies, with an aggregate face amount of $570 billion, lapsed, for which policyowners received nothing. 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. In a 2017 report, the National Association of Insurance Commissioners (NAIC) stated, “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.” Life settlements are highly regulated by state insurance departments through extensive licensing requirements for buyers and brokers and standards ensuring the strongest senior consumer protections.
As more and more seniors are faced with the challenge of how to pay for the increasing costs of health care, including very expensive long-term care, life settlements can help. 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.
Bryan Nicholson, LISA’s Executive Director, called on Congress to adopt H.R. 5958, stating “The Senior Health Planning Account Act will increase awareness that life insurance policies are an asset that seniors don’t have to lapse or surrender back to insurance companies. Life settlement proceeds will provide billions of dollars of living benefits for seniors to use for their own health care.”