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As Stocks Take a Dive, Some Retirees Take a Look at Life Settlements

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(Related: When Clients Want to Sell Life Policies, Seek Multiple Offers)

As financial markets around the globe react to the spread of the coronavirus, many retirees worry about the impact on their investment portfolios. Seniors who are about to begin their retirement drawdown strategies are wondering how the market’s plunge will change things.

Most financial planners and advisors are recommending that their clients remain calm and stay the course, assuming they have the proper asset allocation along with enough cash in their emergency fund to pay for two years of basic living expenses. A well-funded emergency cash account can provide seniors with peace of mind during times of economic crisis or pandemics such as the coronavirus. They know they won’t be forced to sell off investments at a loss in order to pay their basic living expenses.

Of course, a key aspect of this advice strategy is making sure investors have a sufficient balance in their emergency cash account that will carry them through several years of market turbulence until stocks recover. Unfortunately, many seniors do not.

That’s why some retirees who want to shore up their cash savings and emergency fund accounts are taking a new look at the secondary market for life insurance.

Selling an Unwanted Policy Can be a Smart Move for Many Seniors

Selling an unwanted life insurance policy for approximately three times its cash surrender value is a smart move that makes sense for many seniors ─ especially for those who are hesitant to make withdrawals from their retirement portfolio in a down-market.

For seniors over the age of 65 who qualify, a life settlement can generate immediate cash that can be used to boost their emergency cash fund or help them avoid dipping too deeply into their invested accounts when portfolio values are down.

For more than 20 years, the secondary market for life insurance has been an option for policy sellers seeking to optimize the cash value of unwanted life insurance policies. Over the past five years, the market has seen resurgence as more institutional capital enters the market.

Since its inception, the market’s growth and staying power can be attributed to a number of factors, including a more robust regulatory environment that protects the best interests of policy sellers (consumers), and the infusion of investment capital from major financial institutions who are attracted to its non-correlated asset class. Institutional investors often allocate a certain percentage of their investment portfolio in non-correlated asset classes, such as life settlements, in order to insulate a portion of their investment funds from the extreme volatility of the financial stock market.

Although it’s too early to tell, it’s possible that the stock market’s recent slide may actually drive more institutional funding into the life settlement (uncorrelated) asset class. If so, that would be good news for policy sellers (retirees/seniors) because when more institutional capital flows into the secondary market for life insurance, the acquisition price for policies (i.e. the cash settlement for the policy seller) moves up a notch.

Tool for Financial Advisors to Calm Clients’ Fears

Financial advisors have an opportunity to calm their clients’ fears ─ especially their senior clients who may be on the precipice of retirement and who have insufficient funds in their emergency cash account.

Now is the time for advisors to let their clients know about the life settlement option and assist them in obtaining a policy appraisal.

According to the Life Insurance Settlement Association, “When a life insurance policy is no longer needed, wanted or affordable the option of selling it can maximize the asset value and minimize losses for your clients. Advisors have a moral, if not a fiduciary responsibility, to understand and inform their clients about options available with unneeded or unaffordable life insurance policies, including a possible sale of the policy.”

Serving Your Client’s ‘Best Interests’

As most advisors are aware, the financial services industry is undergoing dramatic change as it relates to fiduciary standards. The SEC Regulation Best Interest Rule (Reg BI) and similar regulations that take effect in 2020 mandate that certain financial advisors serve their clients’ best interests when making an investment recommendation.

Although the new Reg BI compliance standards do not expressly apply to life settlements, the spirit and intent of the new regulations is clear: If selling an unwanted life insurance policy is clearly the best option for retired clients who need immediate cash to preserve their invested assets, financial advisors have an obligation to inform their client about it.

Financial services professionals have now entered a new “consumer-first era.” That’s why compliance-driven advisors who are helping their clients sell unwanted policies will want to partner with an experienced broker like Asset Life Settlements who are bound by a fiduciary duty to negotiate the highest possible offer for your client’s policy in the secondary market.

— Read Life Settlements: What Producers Should Know About Fair Market Valueon ThinkAdvisor.


Hallman, from Frith
Scott Thomas, from Frith

Jeff Hallman is a co-founder and managing partner at Asset Life Settlement LLC. He has been involved in case submission, underwriting, compliance, the institutional bidding process, life expectancy analyses and contract negotiation in the life settlement market. He can be reached at 888-335-4769 x1108.

Scott Thomas is a co-founder and managing partner at Asset Life Settlements LLC. He can be reached at 888-335-4769 x1115.