As a financial advisor, you’ve probably set a few goals that you’d like to achieve in 2016. Maybe you want to attract more Millennial clients. Maybe you want to become more tech-savvy. Or maybe you want to invest more in your own professional education, by reading great books or varying the way you fulfill your continuing education requirements.
While these goals vary from advisor to advisor, we’d bet that there’s one goal nearly every advisor would like to meet: helping their clients improve their financial standing. After all, that’s your job - you provide the expert advice clients need to make sound financial decisions.
But there’s one area that many financial advisors tend to overlook when it comes to providing that expert advice. For whatever reason, life settlements remain a neglected option when it comes to finding ways to help senior clients improve their finances.
In a life settlement transaction, an individual life insurance policy owner works through a financial advisor and a life settlement broker to sell his or her policy to investors on the Secondary Market.
The reason for doing this is that often, policy owners can end up selling the policy for far more than the cash surrender value. For example, we’ve worked with an advisor whose client had a $750,000 Universal Life policy with a cash surrender value of $3,800.
But on the Secondary Market, that client was able to sell the same policy for $175,000, using the funds to increase his retirement account and pay for his growing healthcare costs.
So how do you know whether a client should pursue a life settlement? You can start by asking yourself these questions.
- Does your client have a life insurance policy that is no longer affordable or no longer needed? Maybe the client is a widow or widower, or perhaps the children that the policy was intended to provide for are grown and fully self-sufficient. Perhaps the premiums are causing your client financial stress.
If this is the case, your client may want to part with the policy, which, after all, is personal property just like their house or car. As such, it’s an asset that can be liquidated.
- Does your client have long term financial needs that he or she is struggling to meet?
That could be anything from adequately funding their retirement to helping support a family member in need, to paying for their own or a spouse’s long term care.
That last possibility is worth some consideration, since the need for long term care is becoming more common as people are living longer. And it can be extremely expensive. According to the company Genworth, the median cost of a private room in a full-time nursing home facility in 2015 was $91,250, with an estimated 5-year annual growth of 4 percent. For a full-time home health aide, the annual median cost was $45,760.
Often, retirees don’t take these potential costs into account, or they greatly underestimate them. If these numbers suddenly loom over a retiree or a senior due to an illness or declining health, it can put a huge amount of financial stress on him and his family. A life settlement, with its lump sum payout, can help alleviate this stress by providing immediate funds to help cover the costs.
- Does your client have an adequately funded retirement account? Can he or she maintain the standard of living he or she desires?
Just as so many people underestimate the potential costs of long term care, you’ve probably noticed that many also underestimate the amount of money they’ll need to live comfortably in retirement.
Sometimes, it’s a simple matter of underestimating their own life span. Other times, they imagine that they’ll be content with a lower standard of living than they’d actually be happy with.
Whatever the reason, a life settlement can help give your client the financial freedom to do what she likes during retirement, whether that’s traveling, helping pay for a grandchild’s education, or even starting a business as an encore career. Or it could simply give her peace of mind, knowing that she has enough money to live the way she’s accustomed to throughout her retirement.
Life settlements are often an overlooked, but powerful tool for your senior and retired clients. If you have clients who are paying too much for their life insurance premiums, or who no longer need their policies, you may want to talk with them about this option. Contact Ashar for help - we’d love to work with you to help improve your client’s financial situation this year.