Retired clients have a primary fear: Outliving their assets.
This strategy addresses that fear on two fronts: Providing a growth opportunity while creating a benefit pool to tap should they need care as they age.
Using a 70-year-old male with $300K in under-utilized assets as our example client, it’s possible to turn $300K into more than $625K by repositioning the funds. The combination of the FIA and an Annuity-Based Long-Term Care Annuity unlocks a flexible, tax-efficient solution.
The business market, top performers often command a more robust suite of benefits than the rest of the company.
In the business market, top performers often command a more robust suite of benefits than the rest of the company. Unfortunately for some, that is not always the case. In fact, on a percentage basis, the top performers often lag the rest of the company in three fundamental areas. Fortunately, this “Benefits Gap” can be solved, either within the benefits plan itself or with individual solutions.
Every year, 500,000 older Americans lapse their life insurance policies, according to a survey by the Insurance Studies Institute. And millions each year will surrender their policies.
The Life Insurance Settlements Association’s own research shows that Americans ages 65 or older leave more than $100 billion in benefits on the table each year by lapsing or surrendering their life insurance policies. These seniors could be your clients. Here is how you can help them, and your practice as well.
Most people (and their advisors) either do not know about life insurance settlements or have preconceived ideas about them. Misinformation about life settlements abounds. Here are eight easy things to know about life settlements:
Any type of policy can be sold. In fact, term policies represent the second most sold type of life policy, behind universal life. How? The key is that the policy must be convertible, and the policy cannot be past the conversion deadline. An important suggestion is, if a client wishes to sell a term policy, plan to start 5-6 months ahead of the deadline to allow plenty of time to market the policy and complete the settlement.
Healthy people can sell their policies. The industry essentially started in the 1980s as viaticals, with terminally ill clients selling their policies to pay medical bills or improve their quality of life. Some people think that is where we still are today, but the market has changed dramatically. A buyer (typically an investor group) does consider a client’s health and life expectancy when determining how much to offer on a policy.
It is true that the shorter the life expectancy, the higher the value paid for the policy. Therefore, the older a client is, the healthier they can be to qualify. The younger a client is, the more health impairments they can be to qualify. Every client’s situation is unique, but their relative health does not preclude them from selling their policy.
Policies do not have to be large to be sold. The focus of media articles and blogs is often on clients who received hundreds of thousands of dollars for their policy. It is true clients can receive that amount, but their policy also usually has a multimillion-dollar face value. Many clients have policies well below $1 million and are mistaken that only larger policies can be sold. The reality is policies as low as $100,000 in face value can be sold.
Most clients do not sell their policies because they need the money. The life insurance industry has done a good job of adding accelerated death benefits and critical illness provisions to their policies. This gives clients additional options, so they don’t have to sell their policies in their time of need. Instead, most people sell their policy because they no longer want or need the coverage.
Many times, clients purchased the policy 10, 15 or 20 years ago, but now the reason they originally purchased the policy is no longer relevant. Some examples are: The client has retired and no longer needs the income replacement; their home is paid off; the client sold their business, so a key person policy is no longer needed; a spouse has died, etc. Policies also become unwanted: a term policy that is about to expire; some universal life policies are becoming unaffordable or are “imploding” over time; or due to limited income in retirement, policies become too expensive.
Clients do not have to sell their entire policy. A client may choose to sell only a portion of their policy. A good example is a client who has a $1.5 million convertible term policy but is retiring. The mortgage is paid off so she doesn’t need all the coverage and doesn’t want to pay the premiums anymore for all $1.5 million, but she still would like some death benefit. She has chosen to sell $1 million of her policy and retain $500,000 for her family.
Life settlements are not just for clients in their 80s or 90s. Age is relevant in determining what an investor will offer for a policy. But a client’s health is also important. Life insurance settlements generally are best for clients age 65 or older, but that is just a guideline. Buyers are typically looking for clients with 10-15 years of life expectancy – sometimes 20(ish). Clients who are younger routinely sell their policies, but younger clients have more significant health issues to fit into that life expectancy window.
Life settlements can work for clients in any economic stratus. A life insurance settlement can be a good option any time a policy is not needed or wanted. With policy face values from $100,000 being sold, a life insurance settlement is accessible for many people.
The market is legal and highly regulated. A U.S. Supreme Court decision in 1911 paved the legal foundation for life insurance settlements. Departments of Insurance in 43 states and the territory of Puerto Rico regulate life settlements, affording protection and transparency for approximately 90% of the U.S. The National Association of Insurance Commissioners (NAIC) and the National Conference of Insurance Legislators (NCOIL) have been very involved in crafting model language and disclosure notices to protect consumers, which have been adopted by the majority of states.
The opportunity for insurance brokers and financial professionals is enormous. Life insurance settlements are a key to client retention and an avenue for new client acquisition. The settlement itself can be an additional source, but the bigger picture is the investment advice and guidance your client will need regarding the funds they receive.
And so, a “hidden asset” that a client is going to lapse and collect little or nothing on, turns into a good funding source for the client and a revenue source for you. According to a 2014 London Business School Study, “Americans who sold their unwanted life insurance policies, collectively received more than four times the amount they would have received had they surrendered them to their life insurance companies.”
The Insurance Studies Institute found 90% of seniors surveyed would have considered a life insurance settlement, if they had known about them. Life settlements are not appropriate for everyone, nor should they be. But if all the alternatives have been considered, and the decision has been made to lapse or surrender a life insurance policy, a life insurance settlement can offer your client significantly greater value.
The conventional approach to designing accumulation-focused Indexed UL strategies involves minimizing the death benefit. Often, this is combined with using the maximum AG49 compliant illustrated rate to squeeze every dollar of projected income out of the product. While that can produce a compelling illustration, it may not be the most effective approach in the real world.
Do you need helpRightsizing Your PermanentInsurance in Retirement?
We’ve seen strategies for utilizing accumulation-focused insurance policies that have grown significant cash value become an effective repositioning strategy. The result is an updated insurance position that reflects the client’s current needs and leverages today’s modern products, all without creating a taxable event.
Help clients access a portion of their death benefit while living. Talk to me about how North American can help offer you more financial protection with a life insurance policy that offers living benefits.
Do you have a plan to pay for your future long-term care? Some life insurance policies offer the potential to access a portion of their death benefit while living. Get in touch with me to learn more about the importance of living benefits!
Are you currently working with clients who have complicated medical backgrounds? M. Williamson Insurance Services has you covered! Not only do we have four full-time underwriters on staff, but we also have questionnaires for every impaired risk situation. Check out our questionnaires!
In one of our industry’s more delicious ironies, the type life insurance typically used to fund Buy/Sell Agreements (BSAs), term insurance, is probably the least appropriate funding solution. The truth of the matter is that a permanent solution, with properly structured ownership, places a powerful financial planning tool in the hands of each business owner. A permanent life insurance solution can not only fund their BSA, but also provide supplemental, tax-favored retirement income, long-term care benefits and more.
We now have a carrier that will now consider applicants with ownership or employed in the marijuana industry. This progressive approach reflects the United states governments decision to reclassify marijuana as a schedule 3 drug.
Product Availability
Capacity/Face Amount Limitations: Normal limits apply. No special/unique restrictions or limits.
Cases where the marijuana business is the sole source of income will be considered.
Both personal and business cases are eligible.
Additional Underwriting Requirements
Most carriers require the following in addition to traditional age and amount requirements:
Business Owners
A copy of the company’s current business license.
Business financial statements/bank statements OR copies of tax returns to verify the business’s income and tax compliance.
Documentation of the business’s compliance with state regulation such as proof of compliance with seed-to-sale tracking requirements, etc.
If a personal insurance case: Personal bank statements indicating the source of premium.
Employees
A copy of their tax return
A copy of the employer’s current business license
Process
Submit a case summary for initial review including the name of the business and indicating that the case meets the requirements outlined above.
If favorable response, submit a trial/informal medical application.
If the case qualifies medically, submit the necessary documentation from the list above along with the formal application.
Carriers may require additional information about the case beyond the items listed here. The final decision is subject to the application and full age and amount requirements being received and acceptable from a medical and financial standpoint.
