By: Mark D. Milbrod, CLU
Principal, Agent Support Group-2-2018

I was recently at an industry conference where I attended a panel discussion with a group of specialists in the Life Settlement Field. I have always explored Life Settlements as part of my everyday practice. For clients that are at least in their late 60’s and own a life insurance policy, we always make them aware that there is an alternative valuation method worth exploring when they are deciding to either lapse or cash surrender these older policies.

I thought that the life settlement marketplace was at a low, but after sitting through the panel discussion, it was apparent to me that the marketplace is alive and well and positioned very well for the foreseeable future. With the aging Boomer Generation retiring at a rate of about 10,000 per day, the inventory for these policies is tremendous. Many of the seniors who hold these policies originally purchased them at a point in their lives that they were looking for a means of protecting their families if something were to happen to them.
As these Boomers are retiring, their needs are shifting. Their children are grown and now have families of their own and the gap that the insurance policy once filled is no longer needed. Instead, this group’s focus is now on income generation, not outliving that income stream and having an overall worry free retirement. When looking at total assets, life insurance (if they have it), is often overlooked and not viewed as a monetized piece of the puzzle.

Here are some things to consider to determine if life insurance can be used as a tool to solve a number of post-retirement issues:

1. Do they have permanent policies with cash value?
Policies that have some degree of surrender value may be worth many times more than it’s actual surrender value. Depending on it’s valuation, a successful settlement transaction can possibly yield an amount equal to 15 – 20% (or higher) of the policy face amount.

2. Do they have older Convertible Term policies?
Some older term polices may still be convertible up to age 75. Under these circumstances, many policies will simply not be renewed/lapsed. If they are still convertible, there may be an opportunity to sell that policy since it can still be converted to a permanent plan. In this scenario, a large windfall of cash can be created that normally would have been foregone. Think of old Buy-Sell term policies as a good source of these types of policies.

3. Is a client looking to defray Long Term Care Costs?
If a client is looking for funds to help defray costs of Long Term Care expenses, older policies may just be the answer. Depending on the size of the policy, the proceeds of a Life Settlement can be used for those types of expenses.

4. Is a client looking to reduce costs of current coverages?
Some clients still have a need to continue coverage and you may utilize a 1035 exchange to transfer cash surrender values to reduce the out-of-pocket premium costs of a new policy. In these cases, a settlement can possibly produce a much larger amount than a policy’s cash surrender value/1035 proceeds. It can pay to explore this as an option for your older clients.

5. Have clients had a change in “situation?”
Sometimes due to a health issue or financial burdens, some policy owners simply cannot afford the premiums to maintain a policy. If this happens in early policy years, a settlement may help recover premium costs that would otherwise be forfeited.

6. Are your clients looking to produce guaranteed income?
One of the goals of your client may be to reposition assets and produce a source of supplemental retirement income. Proceeds from a life settlement transaction can be used to purchase Guaranteed Lifetime Income via a number of well-designed annuity contracts.

As advisors, it is incumbent upon us to present our clients with “all” options available to them. Life Settlements can be a good way to turn a normally “overlooked” asset into a tremendous source of funds that can be used in a number of ways to further assist our clients in achieving their financial goals. For the most part, start looking at your clients that are at least in their late 60’s and early 70’s that have older life insurance contracts. Pricing looks best when there has been a health change of at least a two tables from how they were originally issued (e.g. Issued at Preferred, Preferred Best or a Standard Rate Class and now would be rated or uninsurable).

As mentioned earlier, the Life Settlement Market is alive and well. There is an abundance of capital available to purchase older life insurance policies. I am not suggesting that it can be used for everyone, but it is an option available to our clients that can assist them with their changing needs. It is worth a look and who knows…

There Just Might Be Gold in Them Thar Hills!



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