Seniors have been affected by the coronavirus more than other age groups. The pandemic relentlessly continues to threaten their health, inhibit socializing, and strain their finances. A central cause for concern remains that, for many seniors, their retirement savings continue to dwindle as they are forced to put them towards healthcare costs.
In response to this ongoing struggle for senior Americans, Rep. Brian Higgins, D-N.Y., and Rep. Greg Stube, R-Fla., have proposed a bipartisan bill in Congress that would permit the proceeds of the sale of life insurance policies to be rolled over, tax-free, into “Senior Health Planning Accounts”, which may be used to pay for a wide range of qualified healthcare costs.
What is the Senior Health Planning Act?
Introduced earlier this year, the proposed Senior Health Planning Account Act”, H.R. 5958, would indubitably enable hundreds of thousands of seniors to generate billions of dollars of wealth using their own asset, their life insurance policy, to pay for immediate healthcare and plan for long-term care needs.
Note: Non-qualified distributions would be subject to immediate tax at ordinary income tax rates, as well as a substantial excise tax penalty.
The Senior Health Planning Account Act would aid seniors in determining where and how they receive care by using assets that they already own, but otherwise likely would go unused, to pay for long-term care or other major medical expenses.
An important thing to understand: without their own resources, including from a life settlement, seniors must rely on taxpayer-funded programs, and largely forfeit control of certain aspects of their healthcare. This bill proposes that seniors utilize the assets already in their possession that would otherwise be wasted, and not eat up more taxpayer dollars.
The truth about selling a policy
Especially for seniors, selling a policy often makes the most sense as an alternative to getting nothing or next to nothing when a policy is lapsed or surrendered. A 2013 study from the North American Actuarial Journal showed that retirees, faced with limited incomes and escalating premiums, are 25 percent more likely to have policies lapse than the general population.
The pre-existing law already provides that no federal tax is imposed on the proceeds from the sale of life insurance policies, but only if insured chronically or terminally ill at the time of the sale (known commonly as a “viatical settlement”). But, many seniors terminate their life policies before they are very sick and in need of long-term care, making the current law unusable for most seniors.
The Senior Health Care Planning Act would enable seniors to use their life insurance to plan and pay for their own healthcare and medical expenses while they still own their policies, without having to wait until after they are seriously ill.
Over 90 percent of life policies terminate without paying a death benefit, according to the American Council of Life Insurer’s 2019 Life Insurers Fact Book. In 2018, 7.7 million policies, with an aggregate face amount of $570 billion, lapsed, for which policy owners received nothing. An additional 1.5 million policies, with face amounts totaling over $130 billion, were turned over to the issuing insurer for a contractual cash surrender value. By contrast, just $57 billion was paid in death benefits on individual life insurance policies in 2018.
Not a government handout
One of the most attractive things about this bill is it would actually push the government out of the way and would help seniors plan and pay for healthcare expenses using assets they already own but are at higher risk of losing.
Those in favor of the Senior Health Planning Account Act define it as a sensible, bipartisan measure that builds on current law to benefit seniors and taxpayers alike. First and foremost, it is particularly necessary to help seniors deal with the medical and financial impact of COVID-19, and should be part of any legislative response to the pandemic.