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February 19, 2006 at 02:00 PM
Changes in family dynamics, such as the death of a spouse or a divorce, may force senior women to make decisions about their family’s life insurance policies.
In sensitive and emotionally charged situations such as death and divorce, insurance agents and other professional advisors often are called upon for their expertise in helping the widow or divorcee work through the options. It is important at times such as these that the professional advisor fully evaluate the client’s complete financial picture and make prudent recommendations about the disposition of existing life insurance policies. Those decisions may involve three alternatives–retention, surrender or settlement.
Although life insurance is a necessary tool in the creation and protection of income and wealth, circumstances change over the years. In many cases, life insurance policies outlast the need for which they originally were purchased, and for some insureds, the premium payments have become burdensome. With the emergence of the secondary market for life insurance policies, seniors over the age of 70 can sell policies that may be in danger of lapsing or being surrendered.
Consider, for example, the case of Jane Smith (not her real name) who was left making decisions for her family estate when her 88-year-old husband passed away. Over the years, her husband had invested heavily in real estate. At the time of his death, payments were coming due for transactions he had financed. Because Jane and her financial advisor did not believe the timing was right to sell the real estate, they evaluated her portfolio to identify potential sources of capital to satisfy the debt. They discovered that Jane owned a $1 million universal life insurance policy that she no longer wanted or needed. The policy had zero cash surrender value, and the premium payments were $56,000 annually. Jane and her agent pursued a life settlement and received $220,000–nearly 25% of the policy face value. The proceeds were used to pay off the debt from her husband’s real estate investments. Problem solved.
