What You Need to Know
- Many clients still need their life insurance coverage, but some do not.
- A client could sell an unneeded policy to replace a bill with free cash.
- The client could also replace a life insurance policy with an annuity.
Life settlements offer an opportunity for agents and advisors to help ease short-term inflation anxiety, improve long-term financial stability, cement their position with clients as trusted advisors — and earn some well-deserved, non-reportable referral fees along the way.
Inflation and associated rising costs are among the top fears for senior clients.
Individuals who are now in their 70s and 80s felt the full brunt of high inflation the last time it was significant in our economy — back in the 1970s.
Interest rates were astronomical compared to what they are today, and they remember how perilous it felt.
Fortunately, we have had 40 years of low inflation and relatively low-interest rates.
Speaking with some of our senior clients, we hear about their concerns about rising prices, and many are looking for ways to cut costs.
As a hedge against inflation risk that has the potential to chew away at retirement nest eggs (in both the short and long term), we are telling clients with whole and universal life policies that now is a great time to perform a policy appraisal as part of an overall assessment of coverage.
Premium payments may become onerous as costs are rising, particularly for those who are operating with a fixed income mentality.
Budgets are tightening and many seniors are not seeing their money go as far as it once did — and they’re looking for some sort of relief.
A life settlement may provide the answer.
For example, a senior client with a $1 million universal life policy may be blowing through $6,000 to $7,000 per month to keep it in force. Given rising costs, they are likely looking at those payments and seeking some flexibility.
Here are the options.
In many instances, a senior client with a $1 million policy could expect a cash payout from a life settlement of about $250,000.
They would go from paying a hefty premium to having an additional $250,000 to invest, with you.
Options abound for both the payout and the roughly $80,000 annual premium payment that they will no longer be sent directly to the insurance company.
1. Increase assets under management.
Placing the settlement proceeds under management is an attractive option for all parties.
It enables the client to spread some risk and increase upside opportunity as many seniors are still looking at the broader stock market for growth.
Adding in the premium payments, or some portion may be the perfect addition to the overall financial plan.
It’s easy for an advisor to do an illustration to explain how placing money under management may be a better option when compared to a prior need for a death benefit.