How inflation can create new solutions with life insurance
by Wm. Scott PageMr. Page is CEO of PolicyAppraisal.com and LifeGuide Partners, LLC, which provides education and perspective to seniors, their loved ones, and advisors as they consider retirement options and research untapped financial strategies. Visit www.policyappraisal.com
All Americans are starting to feel the inflationary pinch. Some more than others. If you have ventured into a car dealership in the past six months, for example, you have seen skyrocketing prices. Grocery store shelves are a little bit bare, and sustained increases for staple items have been the norm for the past year or so. Don’t even get me started on gas prices.
What does this mean for financial services? Albert Einstein once said: “In the midst of every crisis, lies great opportunity.” In business, I know this to also be true because everyone who’s in crisis needs a solution. And if you can quickly switch out of the mode of being nervous about a crisis and start looking for opportunities, you can come out ahead.
Inflation, rising interest rates, the war in Ukraine, and supply chain issues, among other things, are causing costs to rise. Yet incomes and wages are not rising at a commensurate level. This means that people are going to start to struggle – if they aren’t already. I will leave it to the economists to decide whether we are headed to a recession or anything similar to that, but it is abundantly clear that many of our clients, and our senior clients, in particular, are feeling the pinch.
I have already heard stories of seniors cutting back on groceries and even tales of those on fixed incomes selling off some of their possessions. While we may not be in a recession, we might be approaching a recessionary mindset.
Is The Life Insurance Premium An Expendable Expense?
In my experience, when people start to feel economic stress, they begin to look at their recurring monthly bills, and this includes life insurance. What we can expect is that premium payments will get delayed and eventually policies will lapse.
That’s the crisis, but here’s the opportunity: You can help your clients manage costs and access a lump sum of cash which will help them better plan for the future and help you earn extra fees.
Help Preserve Cash… And Cash Value
Reducing bills are critical to any financial plan. How much money is your client paying for their life insurance premiums? Saving those increasing payments or re-directing this into a saving plan can have a positive effect on their overall financial picture.
As part of this discussion, agents and advisors should let clients know what will happen if they stop paying premiums. Aside from the risk of overall lapse, the cash value of the policy could be used by the carrier to pay the policy premiums. Clients will likely be better off taking the cash out rather than having it be slowly whittled away by the carrier. No longer having premium payments and cash in hand can be powerful. As we know during times of crisis, cash is king, and clients who have access to it will likely be better off.
Look At Life Settlements
Many seniors don’t realize that options exist if a policy becomes too expensive. They can perform a policy appraisal to determine its value on the life settlement market, and with this appraisal in hand, they can have a better understanding of what their policy might be worth. Universal Life policies have the best chance at pricing, based on the flexible premium charges. With whole life policies, a life settlement is always going to beat the cash surrender value. And there are even some companies right now that are actively looking to purchase term policies.
A senior who lets a term policy lapse may be walking away from a guaranteed payment, albeit nominal. The companies that are purchasing term policies are not paying a lot for them, but they’re paying something — so it would be absolutely within the best interest of clients to explore that option. Cash from a life settlement could help clients pay bills and manage inflationary pressure.
Flip Life Settlement Proceeds Into A better Financial Offering
A life settlement gives agents and advisors interesting options for their clients. The settlement proceeds and future premiums could be flipped into a client’s managed account, increasing an advisor’s assets under management. Or a settlement could be used to fund an annuity that could produce future income. A settlement can be its own form of “money in motion” and provide a chance for agents and advisors to put proceeds to work for their clients to produce future returns.
We are already beginning to see nervous seniors asking about their options with their life insurance policies. The chaos in the financial world provides an opportunity for agents and advisors to reach out to their clients and assess their current policies. A policy appraisal can be a source of insight and guidance for their clients.
We know that interest rate hikes are coming and that the pain of inflation is already here. This situation is probably going to get worse before it gets better, but it provides an opportunity for agents and advisors to reconnect with clients and offer solutions to help them hedge against inflationary pressures.