Life Settlement for Converted Term Policy Helps Senior Pay for Wife’s Alzheimer’s Care
Ever increasing numbers of seniors and their financial advisors are discovering the financial advantages of selling unwanted policies in the secondary market. According to a recent announcement from Conning Research group, the number of life settlement transactions is expected to grow over the next decade. The growth in the market is attributed to greater awareness of life settlements and the number of retiring baby boomers opting to sell policies.
The majority of life settlement transactions involve the sale of universal life policies that were purchased years ago for income protection or for estate planning purposes. But as circumstances change, policy owners find themselves with excess coverage. That’s why many are turning to the secondary market to optimize the monetary value of their unwanted insurance assets.
What many seniors and advisors may not know is that term life insurance (if convertible) may also qualify for a life settlement. Even more remarkable is the concept that it’s possible to sell only a portion of a converted term policy in order to receive a cash settlement along with a reduced (retained) death benefit.
CLIENT SUCCESS STORY
The following success story is an impressive example of the problem-solving potential of life settlements for term conversion policies. This case illustrates the powerful impact of advisors who “think outside the box.”
Thinking Outside the Box
Financial and insurance advisors who have experience with life settlements are often quick to spot opportunities where selling a policy can help his/her client address multiple financial challenges.
Such is the case with an advisor from a life insurance brokerage firm who recently requested our assistance with the sale of a $500K converted term life policy. The outcome of this case (as summarized below) provides a stunning example of how an advisor’s ability to think outside the box provided his client with both an unexpected cash windfall of $80K, as well as a retained death benefit of $100K.
Client’s Situation Involved Multiple Financial Challenges
The client explained that he and his wife had purchased a $500K term life policy years ago and that the policy was nearing the end of its conversion period. After conversion to a permanent policy, the new annual premiums would increase to $11,640 annually becoming a financial burden to the family.
The client and his wife (who had recently been diagnosed with Alzheimer’s) no longer needed the full death benefit coverage because their adult son was financially stable. Their top-of-mind concern was to identify funds to help pay for his wife’s in-home Alzheimer’s care and subsequent residential care.
The client’s initial idea was to only convert $100,000 of the $500,000 term policy to a permanent policy and keep that for their son. With regard to the remaining $400K also available for conversion, his intent was to let it expire/lapse. The client reasoned that this approach would substantially reduce future annual premiums and therefore free up cash flow needed for his wife’s in-home Alzheimer’s care.
Advisor Recommends an Innovative Life Settlement Strategy
Prior to their meeting with the advisor, the client’s family was not aware of the existence of the secondary market for life insurance and had no idea that a term policy could be converted and then sold for a lump sum cash payment.
Fortunate for his client, the advisor’s (BGA) was skilled in creative insurance solutions and had substantial expertise with life settlement transactions.
Recognizing that his client had felt burdened by annual premiums, the advisor asked the client if he would consider an “alternative solution” where he could receive a substantial cash settlement that would more than recoup the total amount he had paid for premiums ($16,000) since the policy’s issue date. They responded without hesitation, “Absolutely!”
The advisor (BGA) recommended against allowing the $400K portion of the policy to lapse. Instead, he recommended converting the term policy to a permanent policy if he could find a life settlement buyer.
At the conclusion of the life settlement transaction, the client’s family expressed amazement that the solution recommended by their advisor addressed all three of their major concerns:
- Family converted and kept $100,000 in death benefit coverage for son.
- Eliminated future premium payments (freeing up cash flow)
- Converted and sold $400,000 DB for $80,000 in immediate cash used for the wife’s in-home Alzheimer’s care
The Road Less Traveled
Advisors with life settlement expertise often take the road less traveled. They are committed to expanding their knowledge of the secondary market by studying actual case scenarios that illustrate the unique functionality of life settlements. These knowledgeable advisors are readily prepared to address a wide variety of financial and estate planning challenges that may be uncovered during the course of routine client meetings. Above all, these advisors recommend against allowing a policy to lapse if there is a chance it could generate a cash settlement in the secondary market.
If you are an advisor interested in reading additional case examples and expanding your expertise, we encourage you to visit our blog site at www.AssetLifeSettlements.com/blog.html
If you have a potential life settlement case you would like to discuss, feel free to call us for a no-obligation policy analysis at 1-855-768-9085.