Senior Health Act Earns Big Endorsement

This week, the Life Insurance Settlement Association (LISA) announced that it would endorse House Resolution (H.R.) 5958, commonly known as the Senior Health Planning Account Act. An endorsement from one of the oldest and largest players in the life settlement industry could bode well for the bill’s future.

House Resolution 5958

In late February, Representatives Brian Higgins (a Democrat from New York) and Gregory Steube (A Republican from Florida) presented H.R. 5958 to Congress. The bill would introduce a new tax-free way for seniors to address their healthcare costs. If it passes, seniors who have sold their life insurance policies as life settlements will have the option to invest the proceeds in a healthcare savings account without incurring taxes.

Rising healthcare costs are one of the primary reasons more than 7 million seniors live in poverty. Legislators on both sides of the aisle hope H.R. 5958 will not only help these struggling seniors, but ensure all Americans remain healthy and financially stable throughout retirement.

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H.R. 5958 could also make life settlements a popular choice for seniors around the country. That’s certainly what LISA’s Executive Director Bryan Nicholson is banking on. In a company press release, Nicholson remarked, “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 life insurance companies.” In addition to providing billions in healthcare dollars to American seniors, he expects H.R. 5958 will relieve the strain on state and federal Medicare budgets.

Phases of Taxation

Currently, life settlement payouts are only tax free for policyholders who have become terminally or chronically ill. For others, taxation occurs in 3 phases:

  • Phase 1: The policyholder receives a tax-free payout equal to the amount they’ve paid in premiums.
  • Phase 2: Proceeds greater than what the policyholder has paid and up to the policy’s cash surrender value incur income tax.
  • Phase 3: Any proceeds in excess of the policy’s surrender value are taxed as capital gains.
The taxation process for life settlements.
Life settlements are currently taxed through a three-part process.

Complete tax exemption would permit seniors to take full advantage of their assets and avoid lapsing or surrendering their coverage. It would also make it far easier for seniors to fill gaps in their healthcare coverage without the added challenges of tying numerous plans together.