Another Piece of the Aging Puzzle
Did you know 2.5 million seniors will walk away from their life insurance policies in a year? They stop making the premium payments or "cash out" their policies – walking away with little or nothing. The reason? Because life changes and people do not know there is another option. There is!
Do not lapse or surrender your life insurance policy until you look at selling it. A life insurance policy – any life insurance policy (including a term policy) – is an asset that you own. As with any asset, it can be sold. For life insurance policies, the process is called a life insurance settlement, or life settlement for short. Through a life settlement, a buyer pays a client a lump sum of cash for their policy. In return, the buyer becomes the new owner of the policy, pays the premiums, and becomes the policy's beneficiary. It may surprise you that life settlements have been legal since 1911 and are highly regulated by the Department of Insurance.
But why exactly would anyone want to sell their life insurance policy? The bottom line is that the policy becomes unwanted, unneeded, or unaffordable. Examples include:
*A term policy that is coming to the end of the level premium period
*Perhaps a client only wants to "convert" part of a term policy – don't let the balance go
*A policy is too expensive to continue paying the premium
*A spouse has passed away, or a client has gotten a divorce - the policy becomes unneeded
*The kids are gone and out of the house – the policy is not needed any longer
*A client has retired, and the premium does not fit into the retirement budget
*Clients are looking for ways to pay for long-term care needs: assisted living or memory care
*Clients are looking for ways to fund retirement
Here are three real-life clients and the reasons they sold their policies:
*A 66-year-old woman had a $150,000 term life insurance policy. Her beneficiary was her ex-husband. There were no children and no one she wanted to leave the money to. Since she didn't need it anymore, she decided that selling the policy made sense to give her money for the care she knew she would need in the future. The policy was marketed, and she sold it for $25,000, giving her the financial cushion, she wanted.
*A 78-year-old gentleman had a $250,000 term policy. He purchased the policy for his wife so she would be protected and could pay off the house if something should happen to him. The house had long been paid off, and his wife had passed away four years ago. His daughters were the beneficiaries. They had successful careers, and their families did not need the money. He decided to sell the policy to make his life more comfortable. He sold it for $128,500. That will go a long way to helping him stay comfortable for the rest of his life.
*A 72-year-old client had a $1,000,000 universal life policy with $6,000 in cash in it. The policy premiums were going up to $2,500 a month to continue the policy. He did not want to pay those premiums. He sold the policy for $150,000, giving him additional money for retirement, plus he increased his cash flow by $2,500 per month.
The numbers are staggering. Of the 2.5 million seniors mentioned, only 3100 sold their policies last year. That is a considerable gap. The reason is that clients and their advisors either do not know about life settlements or have misperceptions about what they are and how they work. On average, selling a life insurance policy through a life settlement generates three to five times the cash surrender value, so seniors who get rid of their policies without looking at a life settlement could be leaving a lot of money on the table.
You may be wondering how much a policy can be worth. The short answer is that it depends. The investor groups who purchase policies look at three primary factors in determining how much they would like to offer on a policy:
How much premium will they have to pay?
How long will they have to pay for it?
The face value, or death benefit, of the policy.
The smaller the policy's annual premium, the more valuable a policy is for a client because the investor does not have to put as much money into the policy. The shorter a client's life expectancy, the more valuable the policy is for a client because the investor will receive their benefit faster. And lastly, the higher the face value of the policy, the more potential value for a client because the investor will receive a higher benefit. Typically, investors are interested in policies of around $100,000 or more, but this is not set in stone.
Policies can be worth zero, tens of thousands, or hundreds of thousands of dollars – all from an asset a client did not know they had. Properly marketing a policy takes 60 – 90 days, with the entire process from start to finish taking about three to five months. In many respects, selling a life insurance policy parallels selling a house.
An important fact is that if you wish to have your policy marketed, there is no cost to find out how much the policy can be worth, and if offers are received, there is no obligation to sell the policy. This service is a free, no-obligation appraisal. If you have a life insurance policy that is no longer needed, wanted, or affordable, please do not lapse or "cash it in" before you look at a life settlement. There could be a surprise waiting for you in the money received from a "hidden" asset.
Lisa Rehburg is President of Rehburg Life Insurance Settlements, a life settlements broker with a fiduciary duty to clients to market their policies to obtain the highest amount of money. She has been in the insurance industry for over 30 years and proudly serves clients nationwide. She can be reached at (714) 349-7981, Lrehburg@aol.com, or www.rehburglifesettlements.com