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February 27, 2019

Seniors May Be Able To Use Life Insurance To Cover Long-Term Care Costs

A bill has been introduced in Congress which would allow seniors to use life insurance policies they own to cover a whole variety of health costs, including long-term care. The bill is sponsored by Representative Brian Higgins (D-NY) and Representative Ken Marchant (R-TX), and its intent is to allow seniors to improve quality of life in their later years. It would also benefit taxpayers, since it would bypass the use of Medicaid for long-term care, which is a result that has the potential to save somewhere in the neighborhood of $2 billion over the next decade.

Origins Of The Bill

The idea of using life insurance to pay for long-term health care needs for seniors is not exactly new. The idea originated in 2007 when Chris Orestis and Don Poole, co-founders of Life Care Funding, proposed a product similar to the Congressional bill and coined it the Long Term Care Benefit Plan. Life Care Funding partnered with life settlement provider Q Capital Strategies until LCF’s exit from the market in 2017.

In 2017, the product was endorsed by the National Association of Insurance Commissioners (NAIC), and this brought additional attention and credibility to the concept. The product has since evolved into Q Capital’s Senior Care Life Settlement, a program similar in many respects to the original.

Advantages Of Using Life Insurance To Cover Healthcare Costs

In addition to saving taxpayers money and improving the quality of life for late-stage seniors, there are some other benefits to the idea of using life insurance to cover healthcare costs. In the past, it was often necessary for seniors to allow their life insurance policies to lapse, in order to qualify for Medicaid funding to cover healthcare. Adoption of the Congressional bill would overcome this problem.

The bill will also permit seniors to save money received from life insurance policies in a tax-free account, well before they might actually need that cash. This in turn, allows seniors to plan for long-term care which they might eventually need, and avoid waiting until they are legitimately ill before cashing in their life insurance policies. The proceeds realized from a life settlement in this manner, could then be rolled over into an account which is dedicated strictly for usage in covering healthcare costs that are permitted under the terms of the account setup.

Life settlements involve the selling of insurance policies for a fair market value, and when seniors arrange for such life settlements and roll them over into a healthcare account, it would be entirely tax-free, provided that any distributions from the account are for the purpose of covering health-related issues. Any distributions which are not used to cover the cost of healthcare would accordingly be subject to both taxes and imposed penalties. If distributions are solely used to cover health costs, the proceeds in the account would not be taxed during the owner’s lifetime.

Future Of The Congressional Bill

There is considered to be widespread support in Congress for passage of this bill, given the fact that it directly addresses a very serious issue in this country, i.e. that of providing funds for long-term senior healthcare costs. At present, there is a massive program in place financed by taxpayers which has to be used to cover the bulk of such costs, and passage of this bill would remove a great deal of the stress from that fund. The growing cost of senior care in the U.S. has been a problem for years, and this would represent a very positive step toward reducing the severity of that problem.

With bipartisan support in Congress, it is broadly anticipated that the bill will eventually pass and become law. When that happens, a great many more seniors will probably seek life settlements from their insurance policies, and will then have the capability of managing their own health care costs, rather than relying on government funding. This is a win-win situation which helps everyone involved, so speedy passage of the bill is to be hoped for, to relieve financial stress for seniors and for taxpayers.

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