LIFE INSURANCE SETTLEMENTS – POISED TO GROW IN 2020Category:
Don’t Let Your Life Insurance Policy Lapse Before You’ve Read This
LIFE INSURANCE SETTLEMENTS – POISED TO GROW IN 2020
An interview in this month’s Financier Worldwide Magazine highlighted that the life insurance settlement market is poised for growth in 2020. What is a life insurance settlement, and why does this growth matter?
Simply, a life insurance settlement is the sale of a client’s life insurance policy for cash. The buyers are typically investors who will become the new owner, pay the premium, and receive the death benefit when the client passes away. The reasons someone would want to consider selling their life insurance policy vary widely, but generally, the client has decided the policy is no longer wanted or needed, or no longer can be afforded. All types of policies can be sold, including term policies. In fact, 500,000 seniors a year will lapse or drop their life insurance policies. They are leaving potential money on the table. This money can be used for anything they wish but can be a good source of funding for health care or long term care costs not covered by insurance or Medicare.
Now, why does market growth matter? When there is a supply of clients who want to sell their policies, there has to be a demand for investors wanting to buy them. This is important because when funding grows, so does the opportunity for more clients to sell their policies. What is spurring this growth? The answer is found on both the supply and demand sides. According to the interview:
Continued low bond yields are creating issues for retirees. With less money than expected, they may look for other assets to monetize, including their unwanted/unneeded life insurance policies. And, the longer historical low bond yields persist, the higher the potential that clients may look at the potential of selling their policies.
Because of the low-interest-rate environment, universal life policies issued in the ’80s and ’90s (even into the 2000s, in my experience) are seeing their cash values erode, since credited interest was not enough to offset the increasing cost of insurance rates.
Given the long-term view for suppressed fixed-income yields, life insurance settlement returns remain attractive for investors.
According to the U.S. Department of Health and Human Services, costs of long term care vary from area to area. As an example, in-home care is $4400 per month, assisted living is $4100 per month, and nursing home care is $7500 or higher. Certain geographic areas are much higher. Retirees may not have saved enough to figure in these costs during their retirement. These costs are escalating at a clip greater than current inflation.
The pent-up value in a life insurance policy is no different than a piece of land: there are people who will sell at different times, or not at all while balancing whether it is more beneficial compared to tapping other financial funding outlets, especially when interest rates are low.
If you no longer want, need, or can afford your life insurance policy, we are here to help. We are honored to be a member of PRO’s Wellness Village. As life insurance settlements brokers, our passion is to obtain the highest return for your policy that we can. Please feel free to contact us at any time we may be of assistance.
Lisa Rehburg is a life insurance settlements broker in the insurance industry for 30 years. A member of the Wellness Village since July 2019 at http://parkinsonsresource.org/the-wellness-village/directory/rehburg-life-insurance-settlements/