Over the past few years, we’ve found that life settlements have gradually been moving more into the mainstream financial world. As we meet with advisors, we find that many more know about this secondary market solution than was true in the past.
However, we still interact with plenty of advisors who aren’t familiar with life settlements. They may know the term, but not how the transaction works. They may have a mistakenly negative opinion of life settlements due to the unscrupulous practices that were sometimes perpetrated decades ago before the industry was regulated.
The life settlement business is complicated, and most financial advisors don’t have the time to learn it completely. After all, that’s why life settlement brokers like Ashar exist.
However, there are a few specific things that every financial advisor should know about life settlements.
Life settlements allow seniors who no longer need their life insurance policies to liquidate those assets, obtaining more than the policy’s cash surrender value.
Life settlements are a way for life insurance policy owners to turn an inaccessible asset into cash, and to obtain a much higher value – in our experience, we’ve seen up to 800% higher – than they would get by simply surrendering the policy.
Life settlements are intended to provide real benefit to seniors who need to increase their cash flow or want to stop paying increasingly costly premiums.
We would never recommend a life settlement to anyone who thought they might need the policy in the future, or whose policy was unlikely to fetch a high fair market value.
Life settlements can be a key element of longevity planning.
As we live longer, more and more of us are likely to end up in long-term care – and yet, too many seniors haven’t considered how they will pay for it.
Long-term care costs can reach nearly $100,000 per year, and Medicaid only covers so much. We’ve seen so many families strained almost to the breaking point by the huge financial burden of paying a long-term care facility tens of thousands of dollars a year, often for a decade or more.
Life settlements can go a long way toward alleviating that intense strain. When the transaction is completed, the policy owner receives a lump sum of cash that can be used to fund their stay in a nursing home or assisted living facility, or to pay a home health aide.
The positive effect that this can have on a family shouldn’t be underestimated. We’ve heard several times from families who chose to do a life settlement that they were finally able to focus on enjoying their time together again, rather than worry about how they would pay their spouse’s or parent(s)’ caregiving bills.
Life settlements are a solution for businesses and nonprofits too – not just individuals.
While we work with plenty of financial advisors serving individual clients, it’s important to remember that life settlements can be a solution for businesses and nonprofits, as well.
Businesses that have insurance on key people within their company may find themselves at a loss for what to do with the policy once that key person leaves or retires. A life settlement can liquidate that policy, allowing the business to put that cash toward a retirement package, or to fund other areas of the business.
Nonprofits sometimes receive life insurance policies as donations from a dedicated donor. However, as we’ve mentioned, seniors are living much longer, and many times, that means making unanticipated premium payments to keep a policy in-force, or even rising premium costs as the insured ages. Liquidating the policy not only gives access to funds immediately, but avoids having to uphold a costly policy.
Life settlements should be a tool in every financial planner’s toolbox – especially when they’re working with older clients. Read more in “How to Help Your Senior Clients Make This Year Their Best One Yet.”