The Senior Health Planning Account Act: What you need to know

Clock November 09, 2021


With rising health care and long-term care costs, more and more seniors are challenged with paying for these expenses in retirement. A bill introduced in Congress, H.R. 5137, known as the Senior Health Planning Account Act, would allow seniors to sell their life insurance policies and use their proceeds, tax-free, to pay for health care and long-term care costs.

Here are two essential features you need to know about Senior Health Planning Accounts (SHPAs) and how they could benefit senior clients if Congress passes this important measure.

SHPAs would allow seniors to tap into the market value of the life insurance policies they are likely to lapse or surrender.

Over 90 percent of life insurance policies, by face amount, terminate without paying a death benefit, according to life insurance industry data. Seniors lapse or surrender their life policies at a higher rate than other age groups, primarily because premiums become too costly when living on a retirement income.

Selling a life insurance policy—known as a life settlement—allows seniors to receive the market value for a policy they are likely to lapse or surrender back to the insurance company for little or nothing. In a 2017 report, the National Association of Insurance Commissioners (NAIC) 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.”

If passed by Congress, H.R. 5137 would allow seniors to roll over some or all of their life settlement proceeds into SHPAs, without incurring any taxes. One hundred percent of the proceeds and any earnings in the SHPA could then be used, tax-free, for qualified medical expenses.

SHPAs would help seniors plan and pay for their long-term care needs.

A majority of seniors rely on Medicaid to pay for their long-term care. When receiving Medicaid assistance, seniors too often forfeit choices and control over the level and type of long-term care services and supports that meet their needs.

SHPAs empower seniors to use their own resources to plan and pay for their own health care and to obtain long-term care that meets their needs. In fact, the NAIC recommended life settlements as “one option seniors might use to generate resources to pay for their long-term care needs.”

Under current federal law, individuals who have an immediate need for long-term care are able to sell their policies tax-free, without any requirement that the funds be used for health or long-term care. Most seniors, however, lapse or surrender their life insurance policies before they become very ill or in need of long-term care, making the current tax benefit unusable for the vast majority of seniors.

SHPAs would help seniors to plan for future long-term care needs when they still have their life insurance policies. The adoption of H.R. 5137 would serve the same goals as existing public policy by helping seniors use their own assets and funds to invest in their future long-term care needs.

“Lighthouse Life supports the Senior Health Planning Account Act and is calling on Congress to adopt this important piece of legislation that could, each year, produce billions of dollars of tax-free income for millions of seniors,” said Michael Freedman, CEO of Lighthouse Life.

Within the current economic and continuing pandemic climates, empowering seniors with a tax-free resource to plan and pay for health and long-term care expenses would be a financial planning game-changer.

Contact us today for more information about life settlements and to inquire about free, no-obligation policy appraisals for your clients.