The Senior Health Planning Account Act will provide essential help for American seniors
As we come together to face these difficult times, it is critically important that we stand up for our most vulnerable populations, especially our elderly, who represent a rapidly growing percentage of our country’s population.
The coronavirus crisis has particularly affected American seniors. Older people are far more vulnerable to COVID-19 than most, yet they often lack the financial resources to meet devastating medical bills. Seniors have to make do with fixed incomes at a time when the value of their savings is subject to wild market fluctuations.
To help our seniors, we need to find creative ways to best use the assets they already have to pay for the health care they need. The “Senior Health Care Planning Account Act”, HR 5958 recently introduced in the House of Representatives does just that.
Most seniors never receive any benefit from what is often one of the most valuable assets they own: life insurance. Most people over the age of 65 own life insurance policies, but more than 90% of policies, in face value, end without a death benefit payment. The vast majority of lapses, for which policyholders receive nothing, even though older people have often paid premiums on these policies for decades.
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Life insurance policies can be sold like any other financial asset, and there are significant consumer protections in place to protect seniors or others who choose to sell a policy they might otherwise let expire or be redeemed.
Life insurance settlements – the sale of life insurance policies at full market value determined by competing third-party buyers – often present a much better option than lapse or surrender. In a 2017 report, the National Association of Insurance Commissioners said, “Policyowners who sell their policies receive a lump sum payment that is typically four times or more greater than if they relaxed or surrendered their policy, according to government and university studies”.
Current law already provides that no federal taxes are imposed on the life settlement proceeds, but only if the insured has already is very ill, at which time the elderly 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 hold their policies, without having to wait until they are critically ill.
This bipartisan legislation would allow policy owners to transfer, tax-free, life settlement proceeds into senior health planning accounts (SHPAs), which can only be used for eligible medical expenses.
The Senior Health Planning Account Act would result in substantial savings to taxpayers by using underutilized private assets to pay for Medicaid expenses otherwise borne by taxpayers. The legislation also has the potential to generate substantial additional tax revenue. Life settlements always generate more revenue than lapsed policies, which generate no proceeds, taxable or otherwise.
In 2018, 7.7 million policies, with a total face amount of $570 billion, expired. Even in an economy that until recently was strong, the percentage of lapses increased by 40% in just five years to 2018. The current crisis is certain to drive the lapse rate even higher, as seniors seek to conserve their money by paying premiums that often rise sharply with age. During the last economic crisis, lapse rates soared — in 2008, the lapse rate rose more than 24% from just two years earlier. Additionally, retirees are 25% more likely to have expiration policies than the general population.
The Senior Health Planning Account Act honors our commitment to the seniors of this country while helping to 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 leading advocate. He has 25 years of experience in the insurance and long-term care industries, and is considered the pioneer of Long Term Care Settlement over a decade ago. Known as a political insider, Orestis is a former lobbyist from Washington, D.C., who worked both in the White House and for the Senate Majority Leader on Capitol Hill. Orestis is the author of the books Help on the way and A guide to aging survivaland has been speaking for more than a decade across the country about senior finance and the secrets to aging in good physical and financial health. He is a frequent columnist for Broker World, ThinkAdvisor, IRIS and NewsMax Finance, has appeared 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 many other media.
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