LifeHealthPro’s sister platform, BenefitsPro, reminded us on Sept. 12 that our industry needs to evolve to meet the needs of a graying population. Roughly 10,000 baby boomers are turning 65 every day, a group that accounts for 28 percent of the U.S. population.
Sadly, a huge number of these new retirees will soon join a less-desirable club: those who have lapsed or surrendered their life insurance policies to the insurance companies that sold them.
Our research shows that seniors over the age 65 annually lapse more than 250,000 universal and variable universal policies with a face value of approximately $57 billion. When term and whole life policies are included, the number of policies exceeds 1.1 million with a face value of $112 billion.
As the trusted financial advisor to your clients, you have a unique opportunity to come to their rescue in a situation where they are contemplating the lapse or surrender of a life insurance policy they no longer need or can afford. By walking them through available options, you can spare them a bad decision and help them realize tens of thousands of dollars — sometimes hundreds of thousands of dollars — in additional retirement funds.
One strategy that seniors find an attractive alternative to surrendering an unwanted or unaffordable policy is to sell it to a third party for an immediate cash payment through a life settlement transaction. A life settlement can bring your client roughly 7 times more than the cash surrender value in their policy, based on industry averages.
And in the spirit of the financial planning profession, what’s good for the client is good for the advisor.
“Beyond looking out for your clients’ best interest in making sure they are fully aware in a potential lapse situation, it is usually in the agent’s best interest to make every effort to avoid a lapse as well, since every time a customer lapses, the agent loses out on renewal commissions,” wrote Brian Anderson, the former executive managing editor of National Underwriter Life & Health.
In addition, if you’re a financial advisor who is not an agent – and therefore don’t receive commissions – you may be foregoing the opportunity to increase the amount of assets under management in your clients’ portfolios, which may be a factor in the amount of fees you are paid. And perhaps most of all, you may be missing out on the satisfaction of knowing that you’ve “done right” for a client who would have made a serious financial mistake without your good counsel.
More than 9 in 10 seniors who lapse policies without knowing about a life settlement indicated they would have considered that option had they known about it. And 79 percent believe that advisors should inform them about a life settlement option.
The changing demographics of America means that we’re in the midst of a huge influx of retirees, many of whom own life insurance policies they no longer need or can afford. Before your client makes the mistake of lapsing or surrendering a policy that has real value as an asset, make sure they are aware of all their options.