As we come together to confront these challenging times, it is critically important that we stand up for our most vulnerable populations, especially our seniors, who comprise a rapidly growing percentage of our nation’s population.
The coronavirus crisis has hit America’s seniors particularly hard. Seniors are far more vulnerable to COVID-19 than most, but they often lack the financial resources to cope with devastating medical bills. Seniors must manage on fixed incomes at a time when the value of their life savings is subject to wild market fluctuations.
To help our seniors, we need to find creative ways to make the most effective use of assets they already own to pay for the health care they need. The “Senior Health Care Planning Account Act”, H.R. 5958 recently introduced in the House of Representatives, does just that.
Most seniors never receive any benefit from what often is among the most valuable assets they own —life insurance. Most persons aged 65 own life insurance policies, but over 90 percent of policies, by face amount, terminate without paying out a death benefit. The great majority lapse, for which policyholders receive nothing, even though seniors often have paid premiums on those policies for decades.
Life insurance policies may be sold just like any other financial asset, and there are substantial consumer protections in place protecting any seniors or others who would choose to sell a policy they otherwise might allow to lapse or be surrendered.
Life settlements — the sale of life insurance policies for full market value determined by competing third party purchasers — often present a far better option than lapse or surrender. In a 2017 report, the National Association of Insurance Commissioners 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.”
Current law already provides that no federal tax is imposed upon life settlement proceeds, but only if the insured already is very sick, by which time seniors often no longer own their policies. The Senior Health Planning Act would help seniors use their life insurance assets to plan for medical expenses while they still own their policies, without having to wait until after they are seriously ill.
This bipartisan legislation would permit policy owners to roll over, without tax implications, life settlement proceeds into Senior Health Planning Accounts (SHPA’s), which may be used only for qualified medical expenses.
The Senior Health Planning Account Act would result in substantial taxpayer savings by using underutilized private assets to pay Medicaid expenses otherwise borne by taxpayers. The legislation also has the potential to generate substantial additional tax revenues. Life settlements always generate more revenue than lapsed policies, which generate no proceeds, taxable or otherwise.
In 2018, 7.7 million policies, with an aggregate face amount of $570 billion, lapsed. Even in an economy that, until recently, was strong, the percentage of policies lapsing increased 40 percent in just five years through 2018. The current crisis is certain to drive up the lapse rate even further, as seniors seek to conserve cash by no longer paying premiums that often increase sharply as they age. In the last economic crisis, lapse rates spiked — in 2008, the lapse rate was up more than 24 percent from just two years earlier. Further, retirees are 25 percent more likely to have policies lapse than the general population.
The Senior Health Planning Account Act honors our commitment to this nation’s seniors while also helping reduce the burden on taxpayers. Congress should act quickly to enact this bipartisan proposal.
Chris Orestis is President of LCX LIFE and a nationally recognized healthcare expert and senior advocate. He has 25 years experience in the insurance and long-term care industries, and is credited with pioneering the Long-Term Care Life Settlement over a decade ago. Known as a political insider, Orestis is a former Washington, D.C., lobbyist who has worked in both the White House and for the Senate Majority Leader on Capitol Hill. Orestis is author of the books Help on the Way and A Survival Guide to Aging, and has been speaking for over a decade across the country about senior finance and the secrets to aging with physical and financial health. He is a frequent columnist for Broker World, ThinkAdvisor, IRIS, and NewsMax Finance, has been a featured guest on over 50 radio programs, and has appeared in The New York Times, The Wall Street Journal, CNBC, NBC News, Fox News, USA Today, Kiplinger’s, Investor’s Business Daily, PBS, and numerous other media outlets.
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