You Can't Take It with You

The House and Senate are considering bills that would create a tax exemption for terminally ill patients who receive benefits from life-insurance policies before they die. These "accelerated death benefits" provide money for medical bills and living expenses.

Patients with AIDS were the first to use life-insurance policies to finance medical care. They turned to a company in Albuquerque, Living Benefits Inc., which in April 1989 began buying life insurance policies for 55 percent to 80 percent of their face value. (See Trends, Nov. 1989.)

Insurance companies soon followed Living Benefits' lead and began offering special early benefits programs. Prudential now lets policyholders collect life-insurance benefits if they have fewer than six months to live or if they have spent at least six months in a nursing home and have little chance of leaving.

Rob Worley, Jr., founder of Living Benefits, says he has already kept at least six people from losing their homes because of medical bills. Indeed, the $7.7 trillion that the Council of Life Insurance estimates is locked up in life-insurance policies could mean the difference between dying in comfort or in poverty for the nation's burgeoning elderly population.

But the legislation—proposed by Barbara B. Kennelly (D–Conn.) in the House and Bill Bradley (D–N.J.) in the Senate—does not go far enough, says Worley. The bills would allow the tax exemption only for people with fewer than 12 months to live. Worley says dying patients need the money earlier. Of the more than 70 people served by Living Benefits, only a handful have had less than a year to live.

Worley hopes Congress will include people who have one to two years left to live. Edmund F. Haislmaier, a policy analyst at the Heritage Foundation, is pushing to extend the provision to cover not only the terminally ill but all those requiring expensive medical care.

Ranit Schmelzer, Kennelly's press secretary, thinks it is unlikely Congress will vote to include any other needy groups in the legislation. Whatever the bill's ultimate form, however, all sides seem to agree that the government is finally looking to the private sector for solutions to the health-care crisis.

Haislmaier predicts that Americans will one day purchase long-term care insurance "to protect themselves in their retirement years, just as they now routinely purchase life insurance to protect their families during their working years."