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August 9, 2016

How to Use Life Insurance to Pay for Prescription Drugs


Generics, which tend to be very affordable, make up about 80 percent of the prescription drugs sold in America.  In addition, about 90 percent of the population has health insurance that includes prescription drug coverage, which means they are largely insulated from the cost of drugs.
But some of the newest prescription drugs, mostly biologics, can be very expensive, especially since some health insurers are imposing much higher cost sharing for some of them. In short, a relatively small number of people are facing very high out-of-pocket prescription drug costs, turning it into a political issue.
Several options are being proposed. Imposing price controls and allowing people to buy their prescription drugs from foreign sources are terrible ideas. In addition, several health policy experts have proposed some interesting though novel ways of pricing and paying for drugs.
Let us add one of those options: term life insurance with an accelerated benefit.
Many major life insurance companies sell term policies with an accelerated benefit in case of a major accident or critical illness. Essentially, the insurer writes a check to the insured if a medical condition occurs, and reduces the value of the policy or cancels it—depending on how much the insured receives.
Of course, if the insured never draws on the life insurance policy—and most people likely wouldn’t—the amount of life insurance would remain in effect until death or until the person drops the policy.
But suppose the insured is diagnosed with cancer and some of the newest cancer-fighting drugs might help, but they’re very expensive and the patients’ health insurance only covers a portion of that cost. Then the patient could draw on his or her life insurance benefits.
How much money are we talking about?
I have a copy of letter from a life insurer to the insured. It reads in part:

 “Our Actuarial Department has determined that the Company’s offer for a full accelerated benefit will be $111,281.78. Please know that if you accept this offer your policy will terminate.
“Our Actuarial Department has determined that the Company’s offer for a partial accelerated benefit will be $88,975.38. By accepting the partial benefit, the face amount of your policy will be reduced to $50,000 and your premium will be decreased to $43.98.”

The reimbursements could be much higher depending on the face value of the policy.

About 60 percent of Americans have some form of life insurance, but more might join if they thought they could benefit from it without dying. A policy with an accelerated benefit that could help pay for expensive prescription drugs—or any other medical expense for that matter—might be a reasonable solution.


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