Life Insurance holds an important place in a financial plan. As life changes, these careful plans are adjusted to accommodate current needs and priorities, and plan changes might include adjust-ments to life insurance coverage.
Financial priorities may shift, leaving insurance coverage less affordable. Or perhaps your assets are being drawn down to pay for more immediate needs. The original need for coverage may no longer exist.
A life insurance policy is a valuable asset. It provides benefits beyond the insured’s lifetime. However, benefit can be also be realized during the insured’s lifetime. Like any asset that is personal property, life insurance can be sold.
The sale of a life insurance policy is called a life settlement. A life settlement is the sale of an existing life insurance policy to a third party for more than its cash surrender value but less than its net death benefit. In a life settlement, the policy’s owner transfers ownership of the policy in exchange for an immediate cash benefit or, in some instances, a reduced interest in the death benefit for the policy’s beneficiaries.
Download our Brochure: The Basics of Life Settlements
You can benefit from your life insurance Today!
Is this option for you?
The owner of an eligible life insurance policy may opt for a life settlement when:
🗓️ Schedule a Free Virtual Life Settlement Consultation
Step 1 of 2: After completing the form below you can choose a date and time for your Free Senior Life Consultation.
Why life settlements are helpful in the right situation:
1. A 77-year-old male owned 3 universal life policies that were distributed to him from a pension plan when he retired, but he could no longer afford the premiums on them. He was able to sell two of the policies, with face amounts totaling $761,200 for $284,328. The sale proceeds allowed him to both improve his retirement income and maintain the third policy of $411,047.
2. A male age 74 and female age 73 had purchased a $1.5 survivorship UL policy to pay estate taxes. With the dramatic increase in the estate tax exclusion, they no longer had a federal estate tax liability and this policy was no longer necessary. Both had some health issues and they were able to sell the policy for $400,000.
3. A 65-year-old male owned $15 million of term insurance with its conversion period about to end. He could not afford to convert all the insurance. He sold $10 million of converted term in a life settlement transaction for $90,000. He then used the money towards the conversion of the remaining $5 million that he kept for himself.
4. A single 59-year-old male, who owned a $250,000 universal life policy, was newly diagnosed with ALS. With a life expectancy of about 8 years, he knew that he was facing significant expenditures to cope with his illness. The
policy was sold for $135,000 and a portion of the proceeds was used to make his home handicap accessible.
4. A trust owned an $8.4 million policy for estate taxes on a male aged 83. The policy was dramatically underfunded and would require unaffordable premiums to keep the policy going. A life settlement netted $2,450,000. The proceeds were used to buy a new survivorship policy for the same $8.4 million face and using the life settlement proceeds the future premium obligation became affordable.
5. Although sell and replace life settlement strategies generally do not work, this one type of scenario, selling and replacing a single life policy with survivorship or a single life policy on a younger, healthier spouse, may make sense in the appropriate situation.
As you can see from the above examples, a life settlement can significantly improve a client’s financial picture as an alternative to lapse or surrender. If you suspect that a life settlement might work, it is worth it to explore eligibility and options.
It is gratifying to see that life settlements are finally being acknowledged as a meaningful way to fund long-term care expenses.. For a person requiring long-term care, especially with a chronic or terminal illness, a life settlement is certainly an option to be considered.
Normally, with a significant illness, the last thing a policy owner wants to do is give up a life insurance policy that is apt to pay a death benefit in the not too distant future. Any other source of funds, including borrowing, is likely to be a better choice than a life settlement because the ultimate life insurance death benefit has the potential to be much larger than the proceeds of a life settlement.
But in many long-term care and significant illness situations, there is no alternative source of funds. Sometimes waiting for the death of the insured is not possible when money is desperately needed in the here and now for medical and long-term care expenses.
According to the U.S. Department of Health and Human Services website, LongTermCare.gov, someone turning age 65 today has almost a 70% chance of needing some type of long-term care services.
Although many policies have accelerated death benefit riders, these riders are quite limited in how and when they can be used. Typically, accelerated death benefit riders
require the insured to have a life expectancy of less than 2 years. Therefore, a life settlement may be available when an accelerated death benefit rider is not.
In the long-term care context, producers need to make their clients aware of life settlements in two different situations: 1) when the client has an immediate need for cash and 2) when the client is seeking long-term care insurance, but does not qualify, an in-force life insurance policy may offer a future alternative via a life settlement. It’_imperative that your client be cognizant that, if the need arises, a life settlement may be a solution.
Your clients count on you to be informed and to make recommendations that take their complete financial picture into account. Leaving life settlements out of the long-term care discussion may leave money on the table.
As s situations come up, be sure to give us a call. A life settlement can make a meaningful difference to both the one who needs the care and to the caregivers. Remember, it cant hurt to try.