#7 - Senior Life Settlement Anatomy 101
Many retirees may have been compelled to abandon the comfort of a conservative asset allocation over the last decade. Anemic fixed income markets have made finding safe yield hard to find, pushing some to the equities market as it has been the only game in town for a while now.
I am quite certain yesterday's replay of the "Flash Crash" with the Dow Jones Industrial Average trading down over 1,600 points, hearts skipped a beat, teeth gnashed and the wringing of hands was rampant. Perhaps the jolt was enough of a reminder that now is the time to talk with your clients about their options with their life insurance coverage. They will appreciate your care and concern.
With budgets stretched to their limits and your client is considering the disposition of an unneeded or unwanted policy, there are several options:
- Life Settlement: Individuals can sell their policy for an amount greater than the life insurance carrier's surrender offer for a one-time cash settlement.
- Accelerated Death Benefit: For a terminally ill policyholder, an accelerated death benefit enables the insured to receive a cash advance against the death benefit.
- Assignment as a Gift: A policy can be gifted to a third party like a church, college or charity.
- Conversion to Long-Term Care Coverage: A conversion is the sale of a policy to a third party in exchange for monthly payments made to a long-term care facility like an assisted-care facility or home care provider.
- A Term to Permanent Policy Conversion: Some term policies have provisions written in the contract allowing the insured to convert their coverage to a permanent form of life insurance without a medical examination. This enables the insured to keep their coverage that might be lost in the event of the term lapsing. This is also a popular option to settle the contract in the secondary market for cash, post conversion.
As a devoted steward of your clients' best interest and security, it is a good starting point to review their life insurance coverage, make them aware of their options and help them make an informed decision.
Many advisors are unaware that an active, liquid market exists for the settlement of life insurance contracts. The facts around the market might open your eyes that there is a better option then letting a valuable asset, cleverly disguised as a liability, lapse or be surrendered for less than it's worth.
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