Senior Clients Need More Income? This Hidden Treasure May Be the Solution

In 2011, a man arrived at the Tulsa Convention Center in Oklahoma with five carved cups to see how much they might be worth. Whether they’d been hidden away in his grandmother’s attic for decades or on proud display for decades, no one knows. But that Saturday morning, he was quite surprised to learn that the set, made from rhinoceros horn, was valued at more than $1 million, the highest evaluation in the history of PBS’s “Antiques Roadshow.” If only we could all be so lucky!

As an advisor, your goal is to help every one of your clients achieve their financial goals. While that rarely (if ever) includes sifting through old attic treasures, you have a handful of strategies and a variety of assets to help your clients grow their nest eggs to support a long, happy, and (hopefully) well-funded retirement. But with traditional retirement now lasting as many as 20 to 30 years, that’s not an easy task. Especially as baby boomers enter a highly publicized retirement crisis.

Medical costs are skyrocketing. Long-term care expenses have the potential to quickly crush anyone on a fixed income. And the market has been unpredictable (to put it mildly). So when assets are dwindling—and there are no carved rhino cups in the attic—what can you do to help your senior clients make ends meet?

The good news is that many of your clients are holding a valuable asset that you may not even realize exists. For your clients 65 and older, that asset may have a surprisingly high market value – a value that is four to ten times more than you or your clients may realize. Even better, your clients may be able to sell that asset today with little to no risk through a highly regulated transaction.

What is this hidden treasure? Life insurance.

Whether your client has a Term or non-variable Universal Life policy, if he or she is 65 or older, it’s likely that policy is either unwanted or unneeded—or most likely it’s simply unaffordable. To keep up with rising costs of insurance and compensate for increasing life spans, five major insurance companies raised their premiums last year—some by as much as 100%—primarily on policies held by seniors. That means seniors are overpaying for policies that don’t even fit their current needs. As a result, a shocking 9 out of 10 policyholders are forced to let their policies lapse (a move that is great for the insurance companies and detestable for the consumer) or surrender the policy, giving them only about $10K on a typical $500K policy.

But there’s a much better alternative available—one that allows your clients to reap the benefits of the full market value of each policy (as much as $100K on that same $500K policy) and enables you to help your clients generate more income to support their changing needs. That alternative is to sell the policy in a Life Settlement. Here’s how it works:

When you own real estate, the value of that property usually increases over time. When you no longer need or want your property, you don’t go back to the original seller and ask them to buy it back. Instead, you put it on the market to be sure you get the fair market price. If you’ve held your property for 20 years or more, there’s a good chance you’re going to make a substantial profit on your investment.

Life insurance policies are much like real estate. Although policies are often seen as a simple monetary contract between a policyholder and a life insurance company, what many people don’t realize is that every life insurance policy is a legal property asset,and it can be sold just like a house or any other asset.

This is great news for seniors. Just at the time when they may need extra funds, selling their policy in the secondary market can provide a valuable return on an insurance investment. That return can used to fund current expenses or be reinvested to generate future income. Either way, it can feel a lot like being told that old painting – or set of rhino cups – in the attic is worth a pretty big sum.

So why aren’t Life Settlements a standard tool in every advisors toolbox? In the past, the market wasn’t well regulated, and many advisors viewed Life Settlements as risky ventures. But changes in regulations over the past decade have transformed Life Settlements into a highly respectable senior financial services transaction. For the over 90 percent of seniors living in the 42 states with modern life settlement laws, the sale of a life insurance policy is fully regulated, with details, risks, and any broker commissions clearly laid out. With accountability a priority, Life Settlement buyers and brokers are state licensed and all applicable privacy and investor protections are required to be maintained.

And with a track record of only 5 consumer complaints in the past 5½ years from policy owners who sold their policies, Life Settlements have quickly earned the respect of consumer advocates and public policy makers. Over the past few years, a growing number of states are requiring insurance companies and Medicaid agencies to promote Life Settlements as a tool to help seniors, particularly those in need of resources to pay for long-tern-care expenses. And, in response to aggressive anti-consumer tactics by insurance companies, the State of Georgia just enacted a law to protect insurance agents who advise and assist their clients with a life settlement.

Everyone would love to find a hidden fortune—especially when it’s needed to bolster a fixed income and help fund a long retirement, or meet the expected and unexpected costs of health care and long-term care. If you have time on your hands, you may want to help your clients dig around in the attic and head down to Antiques Roadshow when it comes to town. But I’d bet my money on the fact you’ll find much needed resources in the form of a Life Settlement. It just may be the treasure you’ve been looking for.