Many seniors experience money-related stress prompted by expensive life insurance premiums. Every month, however, they make costly payments out of the desire to keep their families safe. Your clients might be under the impression that they have to choose between serenity and security. Nevertheless, a life settlement can offer someone both.
The following article provides you with more information about how the increasing rate of premiums and life spans are rendering life insurance policies impractical investments for some individuals.
Regardless of what type of life insurance is owned by your clients, the cost of insurance charges become more expensive as the insured grows older. For non-guaranteed products, such as current assumption universal life, these increased costs can eat into the cash value accumulation of the policy. When that happens, premiums can increase as much as 200%. For many insured’s, “Universal life insurance, a 1980’s Sensation, Has Backfired”. Many senior clients are either not in a position to pay the increased premiums or would just rather apply the premium obligations to some other area of their financial plan.
Life insurance needs change throughout the course of one’s life. Someone who is no longer raising a child might not have any need for life insurance at all. As Forbes contributor Larry Light puts it, “if you no longer drive a car, you don’t need auto insurance. If you no longer own a home, you don’t need homeowners’ insurance.” Shouldn’t our finances always line up with our life situation? Why should one make unnecessary payments if they aren’t absolutely necessary?
Increasing Longevity Extends the Planning Horizon
Life expectancy is on the rise, especially for successful senior clients who have the financial ability to eat good food, exercise, live active social lives, and travel without putting a stress on their finances. Money might not buy love, but it can buy better health and successful seniors are betting on living to age 100.
Case Example: Living longer than expected
Mary, at age 85 is going to outlive her life insurance coverage. 30 years ago, when Mary’s advisor suggested that she purchase a life insurance policy, her estimated life expectancy was 86-years-old. She bought a current assumption universal life insurance policy with a death benefit of $500,000 that was supposed to last until age 90. The advisor who sold her the policy retired years ago and nobody has been managing her policy. Mary received an unexpected increase in the annual premium needed to keep her policy in force until she was 90-years of age. To make matters even worse, the latest longevity analysis for Mary indicates that she could most likely live to age 95 or longer.
Mary turned to her CPA for advice. They explored the options: keep paying the policy as is, stop paying premiums and let the policy run as long as the remaining cash value would take it, reduce coverage, or surrender the policy for the cash surrender value of $27,682.
Mary had seen TV commercials about how seniors could sell their policy for a cash payment in something called a life settlement. She worked with her CPA to explore life settlement options and discovered that life settlement providers and the companies doing direct marketing to seniors, could not represent her best interest because of their obligation to get the most favorable price for their investors. That was not a good option for Mary. Further exploration revealed that a life settlement broker was the only one in the life settlement market that by law has a fiduciary duty to protect Mary’s best interest during the life settlement process. After everything that Mary and her CPA had to go through to find the best solution, this story has a happy ending. Mary used a fiduciary life settlement broker to negotiate the best offer for her by forcing a competitive auction between life settlement providers/buyers.
Mary sold her policy and received a cash payment of $202,346.
If your senior client’s life insurance premiums are out of our control, NEVER let them lapse or surrender their policy without first determining how much value it might have if they sold it on the secondary market. On average, a life settlement delivers 4-8 times more value to your client than if they just surrendered their policy. Even term insurance can have significant life settlement value, and it’s not hard to beat the $0 the policyowner would receive if they lapsed or surrendered their term policy. A life settlement provides a lump sum payment to your client and eliminates the ongoing premium obligations. This opens up a whole new world of planning solutions for seniors in transition.
We are here to assist you as you help your clients regain control of their finances, and, as a result, reclaim their lives. Take our policy value quiz to help you determine if your client’s policy would qualify for a life settlement.