Some of your retirement-age clients might think that they should keep paying for life insurance, i.e. expensive premiums, in hopes of a buyer eventually purchasing their policy. Yes, it is wise to practice forward planning with personal finances, but with life insurance, things are rarely black-and-white.
If you are working with a policyholder who is continuing to pay for life insurance only so an buyer can, at some point, purchase it, your client is probably better off selling their policy now, as opposed to later. To better understand why this is the case, let’s take a look at the law of large numbers.
The law of large numbers
The law of large numbers can be applied to a variety of scenarios. Essentially, this statistical principle looks to past occurrences in order to predict future outcomes. Life insurance companies use the law of large numbers to predict death rates among their policyholders for a set period of time, usually a year. According to the law of large numbers, when the number of people who purchase life insurance increases, insurance companies can make their predictions with a higher accuracy. The insurance companies can hence anticipate funds needed for death claims.
What does the law of large numbers mean to the seller?
Life insurance companies are highly reliant on the law of large numbers. The industry depends on the law of large numbers to both make and distribute money; it is needed for profit and maintenance. Policyholders, by contrast, don’t benefit from this statistical principle; they act more as participants.
What do policyholders benefit from? At Ashar Group, we have found that clients in financial transition who extract the embedded value of their life insurance policy to use for other financial objectives, not only reap rewards, but gain peace of mind. Life settlement transactions allow the seller to allocate funds to other areas of their life.
How does the the buyer benefit from the life settlement transaction?
It’s as simple as the old adage, “don’t put all your eggs into one basket.” The same goes with assets. Purchasing a life insurance policy is an optimal diversification strategy. Investing in life insurance can help one build a well-balanced portfolio, thereby reinforcing overall security. Life settlements also consequently help buyers spread risk and protect against market volatility.
After purchasing a life insurance policy, the institutional buyer becomes the new owner of the policy. With life settlements, after the insured passes away, the buyer receives the death benefit.
For more information on how the life settlement process works, and whether it is an option for your senior client, give us a call or take our 7-question policy value quiz. Our team of experts is dedicated to asking and answering the crucial questions that will help you make informed decisions. Though a life settlement isn’t right for everyone, Ashar Group can be part of the process of determining whether it makes sense for your client’s situation.