One year ago, everything changed for the life insurance secondary market; in July 2017, a subgroup of the National Association of Insurance Commissioners (NAIC) released the policy paper, “ Private Market Options for Financing Long-Term Care ” that endorsed the concept of cashing in life insurance policies to generate assets to help people pay for long-term care.This is the position the life insurance secondary market has been promoting for years – seniors are unaware of assets in their life insurance policies that can be used while they are still alive. To have the NAIC endorse it was a watershed moment for the industry and, more importantly, people in need of financial resources for long-term care. As it turns out, the paper was just the beginning. Over the last year, it has become increasingly apparent that paying for retirement in America is a full-blown crisis in search of the answers the NAIC addressed.Consider these trends: Just as baby boomers began to hit age 65 in the 2000s, the long-term care insurance market began to shrink from 100 carriers to less than 20 while still serving eight million policies, according to the Global Long-Term Care insurance market report . The consolidation of carriers contributed to major increases in premiums that have further depressed the market for new policies. For a generation that is living longer, costs in retirement are skyrocketing; for long-term care, it has reached an average cost of almost $100,000 for a year stay in a private nursing care room, according to the Genworth Cost of Care Study . By comparison, a recent Congressional proposal to create a long-term care benefit in Medicare offered a $100-a-day benefit. Faced with this cost squeeze, seniors are not only less prepared for retirement than ever, many are being forced into bankruptcy protection to get out from the debts they are incurring in retirements. According to a just-published research paper , the rate of seniors filing for bankruptcy has tripled since 1991.
For those nearing retirement, it is obvious that they will need as many financial resources as they can amass. The dilemma they face is that they often don’t know just how much they need until they get there - other than it’s more than they typically think it will be.Related: The Surprises Your Clients Must Avoid As They Near the Need for Long-Term Care
That’s what makes the NAIC endorsement important. For seniors who own life insurance policies, selling the policies may provide a potential solution they may have never before considered. In fact, a 2008 study
by the Life Insurance Settlement Association says that in 2008 seniors let lapse more than one million life insurance policies with a face value of $112 billion.Accessing the secondary market has never been easier or more readily available to consumers than it is today. The regulatory environment is not only solidly in place across most of the country, but as evidenced by the NAIC paper, regulators and political leaders have come to look upon settlements as a long-term care funding solution with favor. Moreover, with such a large pool of in-force life insurance policies owned by seniors, there are literally billions of dollars available to fund retirement and long-term care costs sitting on the sidelines every year just waiting for the information and guidance to tap into the secondary market value of this asset.The secondary market continues to grow in its mainstream stature and consumer awareness. Driven by TV commercials and media attention, there is more understanding and acceptance by insurance and financial advisors. Also, the word is getting out to advisors that a life insurance policy is legally recognized as personal property of the owner, and that withholding information about secondary market options from a policy owner opens up the risk of possible legal liability. As legal actions in the matter of disclosure vs. concealment of information about the secondary market value of life insurance policies have demonstrated, more and more advisors are adding this information to their practice as both a smart business practice, and as a hedge against potential legal and financial liability.Related: Killing the Death Tax: How a Change in the Tax Law Impacts Life Insurance Sales
The combination of growing consumer awareness, advisor adoption, a favorable tax and regulatory environment, and the financial challenges confronting an aging baby boom population will continue to propel growth in this market, and help seniors tap into billions of dollars of available liquidity coming out of an asset they already own.