Why Life Settlements Are Worth Talking About To Your Senior Clients

Unlock the Cash Potential of Life Insurance

Financial professionals are beginning to realize the potential of a life settlement and they are transferring that knowledge to their senior clients who could benefit from this financial opportunity.  Life Settlements are a viable option for many seniors that no longer need their insurance policy.  We have seen the cost of new insurance policies become increasingly competitive due to the use of the new mortality tables.  A life settlement often results in the senior client getting the funds to replace their old policy with new coverage at a lower premium payment. * Life Settlements aren’t for everyone, but they often can be an attractive option for seniors that fit the appropriate criteria.

About Life Settlements

A life settlement is a financial transaction in which a policy owner possessing an unneeded or unwanted life insurance policy sells the policy to a third party for more than the cash surrender value. The purchaser becomes the new beneficiary of the policy at maturation and is responsible for all subsequent premiums. One of the ways that Life Settlements are playing a key role as a wealth management tool is the opportunity to use the proceeds from the settlement for replacement coverage.  Many of the cases coming through our door involve strategies whereby the proceeds, or a portion of the proceeds, are used to finance a more cost-efficient policy now that the rates for seniors are more competitive than they had been years ago before the mortality tables were adjusted.

The Marketplace

As the Life Settlement marketplace continues to expand and as increased numbers of high net worth seniors seek liquidity from unwanted life insurance policies, we find it apparent that the Life Settlement industry is maturing as it relates to the industry’s impact on the financial services marketplace.  As circumstances change, the ability to obtain cash from the sale of a life insurance policy can be particularly valuable. In our experience, the majority of Life Settlement transactions are entered into for the purpose of purchasing other insurance and financial products. Senior Life Settlements insurance proceeds are unrestricted and can be used to fulfill a wide range of financial and estate planning objectives for your client.

Achieving Financial Objectives

An increased number of wealth management professionals are just now beginning to understand how seniors can leverage the value of their life insurance to achieve a number of financial objectives. Although some financial professionals who have been involved in life settlements for several years have noticed the growing acceptance to the idea of selling policies on the secondary market, there are many others who are just now learning about the concept of a Life Settlement. Financial advisors should be aware that a life settlement should only be done in the best interests of the client. For example, if a 75-year-old individual plans to let a $1 million policy lapse because the premium payments are too expensive and the reason for the coverage no longer exists, the financial planner should inform the client that a life settlement might be a better option, including the option to donate the proceeds to charity to help offset the tax consequences.

Baby Boomers

It is likely that within the next few years, the number of financial advisors handling Life Settlements will increase dramatically due to the wealthy baby boomers that are looking at this viable option for themselves, or for their aging parents. But, what happens when circumstances change, premium payments become burdensome, and the original need for a life insurance policy no longer exists? With the emergence of the secondary market for life insurance, some industry experts say today’s Baby Boomers are more inclined to purchase sufficient coverage to address their planning needs because they know that they have the Life Settlement option as an exit strategy if circumstances change once they reach age 70.

In Conclusion

The life settlement industry is gaining momentum while attracting greater regulatory scrutiny, and we believe 2017 will be a pivotal year in defining the industry’s future. There is little doubt that the product has helped thousands of seniors tap the liquidity of an unwanted asset. According to our own internal statistics for 2016, life settlement offers generated by Abacus Settlements provided seniors with approximately $285 million beyond cash surrender value. Considering the positive economic impact for seniors, we believe the life settlement industry will expand as more seniors become knowledgeable about how the product can help them achieve their financial objectives. The option of selling one’s life insurance policy as part of a broader financial planning strategy can often be a prudent financial decision, but nonetheless a significant step for the policyholder. That’s why we encourage seniors to seek professional guidance when considering this transaction.

*Due to life expectancy and health considerations, not all seniors will be able to purchase insurance to replace their existing coverage at a lower cost.  Prior to entering into any life settlement arrangement, the need for replacement insurance should be considered, and if suitable, a new policy should be in place. NFP Securities, Inc. does not provide tax or legal advice.

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