The Life Insurance Settlement Association (LISA) announced this week that it would endorse House Resolution (H.R.) 5958, also known as the Senior Health Planning Account Act.
Representatives Brian Higgins (a New York Democrat) and Gregory Steube (a Florida Republican) introduced H.R. 5958 to Congress in late February. If adopted, the bill would create a new tax-free way for seniors to manage their healthcare costs. Seniors who have sold their insurance policies by pursuing a life settlement will have the option to invest the proceeds in a tax-free healthcare savings account.
Currently, more than 7 million seniors live in poverty and rising healthcare costs are largely to blame. Legislators from both parties hope the act will help these struggling seniors while ensuring that all citizens remain healthy and financially stable well into their retirement.
H.R. 5958 should also make life settlements an even more popular option for policyholders around the country. LISA’s Executive Director certainly thinks so. In a company press release, Bryan 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 insurance companies.” He goes on to predict that the new law could provide billions in healthcare dollars to America’s seniors and relieve state and federal Medicare budgets.
Under the current law, life settlements payouts are only tax free for terminally or chronically ill policyholders. For all others, taxation on life settlement funds occurs in three waves:
- First, proceeds up to the amount the policyholder has paid in premiums are paid out without income tax.
- Next, proceeds greater than what the policyholder has already paid and up to the policy’s cash surrender value incur normal income tax.
- Last, proceeds beyond the policy’s surrender value are taxed as capital gains.
Full tax exemption would permit all senior policyholders to take advantage of their assets and avoid ending their coverage with lapse or surrender. What’s more, it would make it far easier for seniors to fill gaps in their Medicare coverage without the headaches of stitching together supplemental plans.
To find out if you qualify for a life settlement, apply for a quote today.