Lapse rates among life insurance policyholders have long hovered in the single digits, though they tend to spike in recessionary times, as happened in 2002. As one would expect, lapse rates tend to rise as policyholders age because of the increase in premiums.
Less well known, perhaps, is just how widespread the phenomenon is among retirees. A new study from ICR Custom Market Research, which polled 504 adults aged 66 and older, shows a solid majority (55 percent) of the respondents allow their policies to lapse. Curiously, younger seniors (ages 66-74), those with higher annual incomes or higher education, are more likely than not to have allowed their life insurance policy to lapse.
The survey adds that more than 8 in 10 (82 percent) of policyholders are not aware that a life settlement is an alternative to a policy lapse.
“These numbers indicate that there is a large segment of the senior population that would benefit tremendously from a life settlement without even realizing it,” said Wm. Scott Page, president and CEO of life settlement provider The Lifeline Program, in a press statement.
ICR conducted the survey in response to a new law in Texas that allows seniors wishing to enroll in Medicaid to do so even if they own a life insurance policy. Before, as in most states, a life insurance policy was considered an asset and therefore disqualified an individual for enrollment. Now, seniors will not be prohibited from entering as long as they sell the policy through a life settlement and use the proceeds to pay for their long-term care.
Among the survey’s additional findings:
Few (3 percent) of respondents say they have applied for Medicaid, but were turned down for having too many assets.
One in five seniors own life insurance for a reason other than that which motivated them to a purchase a policy. This finding is more pronounced among younger seniors (ages 66-74) and those with higher incomes.
One in ten seniors claims to not own life insurance.