For the last year we have all been subjected to the massive exposure to Covid-19 virus and it has taken its toll on businesses as well as individuals. For seniors in particular, low bond rates and dramatic life insurance premium increases have created quite the perfect storm, a substantial challenge for them.
A large percentage of seniors in the 70-90 age category have experienced an increase in their life insurance premiums to keep their policy in force to life expectancy. What can advisors, legal, financial, or otherwise, in the professional community do to offer assistance to this vulnerable class?
On occasion, we get a distress call from an Attorney and/or a CPA with a client complaining that their life insurance premium has tripled over a short period of time and that they are ready to cash in or drop the policy.
If I could shout from the mountaintops, I would alert all professionals of this significant, growing concern…but also that an opportunity has been created for all of us to help these seniors avoid losing the values in their insurance portfolios.
To fully understand the problem, you have to recognize that many of the stock-based insurance companies, armed with the best actuaries, have just arbitrarily raised premiums on policies insuring this age group, in my opinion, solely to bolster their profits.
You see, as time marches on with increased life expectancies, the policy owner will either have to pay an extremely high premium, usually 300% higher than what they had been paying, or he or she will elect to drop the policy for its surrender value, or as we call it, “salvage value”. Whichever path is chosen by the policy holder, the stock insurance company wins!
We could be witnessing a slow-motion train wreck in real time!
What’s missing is an objective diagnostic that gives the client an unbiased evaluation of either keeping the policy compared to the value of selling the policy without regret.
The Life Insurance Settlement Association reported that in 2018 7.7 million policies with a face amounts totaling $570 billion, lapsed, for which the policyowners received nothing. This lapse rate was 40% higher than just 5 years ago.
And 90% of the clients that surrendered or lapsed their coverage would have wanted to know a life settlement was an option for them to consider but they weren’t told about it. (lawsuit?)
Many Attorneys remain unaware of life settlements as an alternative to the lapse or surrender of a policy.
In addition, because attorneys should be familiar with their clients’ financial pictures, they miss out on the perfect time to discuss with their clients’ other situations where a life settlement might apply as well:
- the sale or termination of a business,
- bankruptcy or an adverse change to a client’s financial situation,
- the death of a spouse,
- divorce, and
- the loss of a job.
Case Study: Business Owner needing an Influx of Cash
75-Year-Old Business Owner had 2 life insurance policies:
- #1 Term policy for $2,500,000 and level term premiums of $13,000
- #2 Index Universal Life (IUL) for $3,000,000 with annual premiums of $87,000.
He needed cash to invest in a new catalog venture, but his primary resource was his cash value in his insurance policies…
The surrender value of the IUL was $29,349.00
The only option for the business owner (he thought) was to surrender the policy for the above surrender value…BUT
The other choice (he was not aware of) was to sell it in the institutional market…. Our team negotiated a cash settlement of $950,000 which the business used to create a new online catalog.
If you have a role with ILIT’s, the last thing you want to do is be on the wrong side of beneficiaries who feel their loved one hadn’t been properly advised.