Tapping into the resource-generating power of Life Settlements
by Michael FreedmanMr. Freedman is CEO of LightHouse Life Solutions, LLC, a US life settlement provider. Michael has been a leading voice in the life settlement market for more than 17 years, serving as a senior executive for two life settlement companies before co-founding LightHouse Life in 2018. Visit www.lighthouselife.com
It’s no secret that the costs of living in retirement are rising. Healthcare costs are creating financial hardships and crises that can devastate older Americans and their families. While seniors look for resources in retirement, one untapped – and often unknown – tool for seniors is to sell their life insurance policies, known as a life settlement. Seniors who sell their policies receive significantly more than if they lapse or surrender that policy back to the insurance company. The National Association of Insurance Commissioners (NAIC) reported in 2017 that policyowners receive an amount that is “generally four or more times greater than if they lapsed or surrendered their policy”, citing university and government studies.
Three of four Americans age 65 and older will lapse or surrender their life insurance policies, leaving no death benefit for their loved ones – and little or nothing for themselves after paying premiums for decades. Over the next decade more than $2 trillion in death benefits will be lapsed or surrendered by seniors whose policies likely could be sold via a life settlement, according to an insurance industry research company.
A life settlement allows seniors to maximize the return for a policy they aren’t going to keep. In 2018, life settlement companies paid policyowners nearly $700 million for their unwanted, unneeded and unaffordable life insurance policies, which is still a fraction of the value that could be created if more seniors – and their advisors – used life settlements. Most people who sell their life insurance policies use the proceeds to invest in their retirement or to pay for immediate needs in retirement.
Transparency & Accountability
There are misperceptions that life settlements are unregulated and should be approached with caution. The facts dispel these myths. Over 90 percent of Americans live in the 43 states that have adopted comprehensive life settlement laws that provide strong consumer protections for seniors and their families. State insurance department licensed companies operate with the highest levels of transparency and accountability of any senior financial service transaction, including required consumer disclosures, privacy protections, anti-fraud measures and state-approved forms. As the strongest senior financial service protection, individuals who sell their life policies must obtain a competency certification from their own doctor prior to entering into a life settlement. According to the NAIC, there has not been a single consumer complaint involving life settlements reported to an insurance department in the US in over four years.
Life settlements can help advisors assist their senior clients. Since September is Life Insurance Awareness Month, now is an excellent time for advisors to learn about the different ways they can incorporate life settlements into their practices. Here are a few ways to use this important financial aid:
Uncovering Assets Your Clients Didn’t Know They Had
Most Americans – including insurance and financial advisors – don’t know that life policies enjoy the “ordinary characteristics of property,” according to a century old US Supreme Court ruling. After years and years of premium payments, policyowners have a property right to capture that value for themselves, and not simply terminate the policy back to the insurance company.
Advisors who help their clients realize a market value return through a life settlement for an asset that will likely be terminated are helping their clients generate retirement income. That’s “found money” that can be used to increase retirement security or pay for costs of living in retirement.
The life settlement process starts with a free appraisal from a life settlement company, which – like any other asset – will help the advisor and their client determine how much their life policy is worth. This is valuable advice and assistance that will help them make the best decision on what is best to do with a life insurance policy and future retirement planning.
Your Client’s Best Interest
Advisors regularly seek to help clients realize the best return on assets they aren’t going to keep. Life settlements are a way for financial professionals to help their clients obtain a market value return for a life insurance policy that is going to lapse or be surrendered. Helping a policyowner with the appraisal and, if appropriate, the sale of a failing life insurance policy for multiples more than the insurance company will pay is consistent with the duties and responsibilities of financial professionals.
Federal and state regulations have recently been adopted that require insurance agents and financial advisors to act in their clients’ best interest and to make suitable recommendations on insurance and investment products. The SEC’s Regulation Best Interest and New York’s Best Interest and Suitability in Life Insurance and Annuities Rule 187 are two such examples. Life settlements are increasingly being seen as a way to comply with these new “consumer-first” rules.
Re-engage and Strengthen Client Relationships
Life settlements are a fresh and often valuable way for advisors to re-engage with their senior clients. Identifying who might be a good candidate for a life settlement, and assisting the client through the process, can strengthen the client-advisor relationship, and help the advisor to fulfill the client’s retirement, healthcare and lifestyle objectives.
Aside from the senior client, the life settlement process also allows advisors to establish or strengthen relationships – and trust –with next-generation family members. As a majority of adult children are providing some level of financial support to aging parents, the resources generated through the sale of a life policy can also provide resources – and relief – to sandwich generation children who are helping their parents financially.
One area of particular attention and concern is how seniors – and their families – are going to pay for the often-unplanned cost of long-term care. Home health care, nursing home care and other forms of long-term care are often a significant burden to both seniors and their children. Life settlements are a way to help pay for long-term care services and supports. The NAIC recommended life settlements as “one option seniors might use to generate resources to pay for their long-term care needs.”
From helping clients exercise a property right to generating tens of thousands of dollars for their client, life settlements are a safe and secure tool for advisors with older clients. ◊