The current controversy over the life settlement business seems to result more from political grandstanding for “face time” in the media than from politicians’ real concerns about elderly citizens selling their life insurance policies at unfair prices.
The controversy tends to obscure other issues that should be of great interest to seniors.
The coming flood of retiring baby boomers has everyone from Capitol Hill to Podunk concerned about how boomers will cope with the financial burdens of extended longevity, inflation and projected instability in the Social Security system.
According to some surveys, large numbers of the soon-to-be-retired are confident they will have enough funds to last their entire lives. Unfortunately, closer questioning often reveals that this attitude is merely “unwarranted exuberance,” similar to the lack of understanding of the dotcom bubble of the late 1990s.
We have written in the past about the seeming reluctance of retirees to consider life contingency annuities as a hedge against outliving retirement funds, and about the reluctance to purchase annuities at time of retirement due to fear of losing liquidity that may be needed in the future.
Although the time of retirement may be too late to purchase life insurance, it is certainly a good time to decide whether to keep any life insurance already owned or to convert some of it to another form that may be more tax effective for liquidity needs.
Here are some factors to consider:
o Cash value life insurance still offers the unique feature of enabling death proceeds to be paid to beneficiaries free from income taxes.
o Certain types of cash value life insurance enable policy owners to borrow against their policies on a tax-free basis. This characteristic can offer retirees what is perhaps the perfect liquidity feature for protecting against unforeseen emergencies or other needs for cash that were not planned as part of the retirement process.