As infrequent as this scenario may sound, it is far more common than your might think— the unsuspecting policy owner who abandons or cashes in their life insurance policy without first checking for SMV®, secondary market value. And for a good percentage of the time, these abandoned policies were rich in “hidden value” that was left undiscovered.
Trust owned life insurance (TOLI) has been a subject of much concern since the mid-90’s when the Uniform Prudent Investor Act (UPIA) came on the scene. As a result, a new cottage industry of policy review companies sprung up overnight to take on the delegated responsibility of review and reporting. Life Insurance is a complex asset to manage and to do it as a prudent investor would.
It's up to you to source, review and facilitate solutions for your clients. That’s why the Secondary Market isn't just an option for fiduciaries, bound to serve clients as though the funds were their own — it’s an option that is simply good practice for every advisor if the circumstances are appropriate. Can you imagine if a client surrendered or lapsed a policy that could have been worth 10 times more than the cash value? How would that impact the trust the client had in the advisor? Would it open the door to a competitor? Would it damage a reputation?
Life insurance has long been a planning tool to offset the impact of federal estate taxes or provide financial relief when a family needs it most. One of the most significant events that impacted recommendations by attorneys, CPAs, and advisors was the passing of the American Taxpayer Relief Act of 2012 (ATRA), which increased the estate tax exclusion to $5.25 million for individuals and, with portability, $10.5 million for married couples. This has created many discussions with clients and their advisors as the need for life insurance planning for estate tax purposes might need to be reevaluated.
Would your client deliberately abandon a piece of prime real estate they owned? Of course not. Yet, with a majority of seniors dropping their life insurance without checking for SMV®, secondary market value, $92 Billion of term policies available on insured 65 and older today could be vastly underutilized.
And the numbers keep growing. The total life settlement market potential is expected to grow from $114 billion in 2014 to more than $140 billion in 2018, according to Conning Research & Consulting 2012. The following case study is just one of many examples showing the vastly untapped potential of the secondary market:
Insured: Male, age 74
Type of Insurance: $1M Term – Convertible to UL
Listed as $0 on the balance sheet
Annual Premium: $35K
Projected Median Life Expectancy: 120 months
Secondary Market Value: $175K
The Secondary Market has changed the way we think about life insurance, planning, and maximizing back-end liquidity. The Secondary Market Valuation SMV® simply cannot be overlooked for a family, individual or business entity. The mission of our team is to provide much needed value and support to advisors and their clients at a time when cash flow concerns may be overwhelming or their needs have changed.
The transaction process for determining a life insurance policy’s fair market value is very similar to a real estate transaction. Although there are some steps that need to be negotiated, the great news is that a health exam is not required to end a policy. get a secondary opinion® of the potential value of your client’s policy at www.ashargroup.com/quiz to determine if you should call a secondary market specialist to discuss digging deeper and gathering more information.
The number of people in the United States aged 65 and older is expected to double by the year 2030 to nearly 71 million people (roughly 20% of the U.S. population). That's over 10,000 people per day that will require guidance from trusted advisors to fund their retirement and healthcare needs. The Secondary Market becomes more relevant and stronger each day with this aging population. The question is, "Which advisors will become the centers of influence within their communities that clients and others will look to for better understanding of this market?"
As needs emerge among seniors for Long Term Care, Retirement Income and Lifestyle Protection, many are seeking alternative funding solutions. To meet these needs and to provide due diligence, advisors are embracing the Secondary Market for Life Insurance and the Life Settlement process.
get a secondary opinion® of the potential value of your client’s policy at https://ashargroup.com/quiz/
