Senior life insurance policy owners are rapidly lapsing or surrendering their policies for minimal value causing them to throw away decades of premiums.
Why Are They Doing This?
There are a variety of reasons that senior policy owners in financial transition lapse or surrender their policies. Among those reasons are:
- No longer need or want the policy
- Premiums are unaffordable
- Need to fund other areas of retirement
- Outliving original planning
- Pay for medical bills
- Fund long-term care
The Quiet Crisis
There is a quiet crisis going on with many of your senior clients who purchased universal life policies since the early ’90s. The unintended consequences of two decades of low-interest rates, coupled with a large number of “orphaned policies” where no financial professional is monitoring policy performance, have caused many of these policies to become broken.
Has this happened to you or your client?
Whether paid monthly, quarterly, semi-annually, or annually, premium payments must be made to keep a life insurance policy in force. In some cases, the premium remains a steady amount and – depending on policy type – enough cash value builds up and premiums are no longer required to maintain the policy. However, the cost of insurance on the policy increases as the insured’s age increases, eating away at the built-up cash value. Suddenly, the policy owner is faced with a large premium payment to keep the policy in force.
More often than not, the expensive premium appears when the insured is in retirement age and cannot afford to make the payment causing policy owners to lapse or surrender policies at an alarming rate. This means seniors are paying premiums for many years and just walking away from their policies.
An Alternative Option
An increasing number of seniors are choosing the life settlement solution. A life settlement is the sale of an existing life insurance policy to an institutional buyer for an amount greater than the cash surrender value and less than the death benefit. Just like real estate, art, or jewelry, a life insurance policy is an asset and can be sold.
A representative sample of policies settled in 2020 tells the story and the opportunity:
- 94% of policies settled are universal life or convertible term
- 88% of policies were settled on insureds age 71-100
The life settlement solution creates a significant liquidity event and the funds can be used for anything – pay for long-term care, retirement, medical costs, and more. The result is greater financial independence and reduced financial pressure on families.
How can you help your clients?
Before making any material changes to an existing life insurance policy, financial professionals and policy owners should first know its value.
At Ashar, we specialize in valuing life insurance assets. If the life settlement path is chosen, we employ a propriety auction platform to secure fair market value for policy owners.