ASHCF Applauds Bipartisan Legislation to Empower Seniors to Use Life Insurance Policies to Pay for Health Care Costs

The Alliance for Senior Health Care Financing today applauded House Ways and Means Committee members Rep. Kenny Marchant (R-TX) and Rep. Brian Higgins (D-NY) for introducing H.R. 7203, which would permit seniors  to use life insurance policies they already own to fund a wide range of health care costs, including long-term care expenses and long-term care insurance premiums.

H.R. 7203 would allow the proceeds of a life settlement—the sale of a life insurance policy for a market value return—to be rolled over, tax-free, into accounts dedicated to funding permitted health care expenses.  Distributions from the accounts would not be taxed if used for permitted expenses.  Distributions for unauthorized purposes would be subject to both income taxes and penalties.  Any undistributed amounts in the accounts, including investment earnings, would not be taxed during the lifetime of the account holder or such person’s spouse.

Americans own their life insurance policies, which they have a right to sell like any other asset.  Seniors may choose to sell their policies because they no longer need them, or they can no longer afford the often escalating premiums.  Selling policies in a competitive and regulated life settlement market is often a far superior option to lapsing or surrendering policies back to the insurance company.  

Life settlements – which are regulated in 43 states that are home to over 90 percent of the U.S. population—provide valuable resources for seniors in retirement.   Life settlements provide many seniors—and their families—additional resources to maintain their standard of living, to live independently, and to pay for such things as housing, rising energy costs, and health care.

A 2017 National Association of Insurance Commissioners report identified life settlements as “one option seniors might use to generate resources to pay for their long-term care needs.”   The financial resources from life settlements can help seniors and their families with the costs of home health, assisted living, or skilled nursing care, and the private resources can help seniors secure appropriate placement and pay for the costs of nursing home care. 

As the 2017 NAIC report 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.”  According to the American Council of Life Insurers, in 2017, over 8 million individual life insurance policies, with an aggregate face value of over $450 billion, lapsed, for which policyholders received nothing.  Over 1.7 million additional individual policies, with an aggregate face value of over $100 billion, were transferred to the issuer for cash surrender value.  Seniors who elect those options often would fare better with life settlements. 

H.R. 7203 allows seniors and others to use life settlements to better plan for their long-term care and other health care needs.  “Life settlements make financial sense for seniors who are not going to keep their policies. This legislation helps seniors make the most effective use of valuable, but often overlooked, asset they already own – their life insurance policy – to fund their health care, rather than relying on loved ones or taxpayers," said Michael Freedman, Executive Director of the Alliance and CEO of LightHouse Life Solutions LLC.  “We strongly urge Congress to enact this important bill.”