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Wednesday, August 12, 2020

Life Settlements: Betting on Insurance during Coronavirus

Life settlements are unique financial options that reward the owners of life insurance policies with more value for their policies as they get older and experience health changes. During the coronavirus pandemic, seniors who own a life insurance policy are actually holding a very valuable asset that is increasing in value as the pandemic gets worse. Life insurance companies are reluctant to issue policies in today’s environment, but the life settlement market is booming.

 Chris Orestis, CSA
Life insurance policies are one of the most valuable and stable assets a person can own, because the death benefit is guaranteed for as long as premiums are paid for the policy. Policy owners have the legal right to sell off an unneeded or unwanted policy through what’s known as a “life settlement.” The majority of people don’t realize that their policy has secondary market value and can provide a lump-sum cash payment while they are still alive. Unfortunately, as many as nine out of ten policy owners will lapse or surrender their life insurance without realizing this—and after making premium payments for years!

Life insurance policy death benefits are guaranteed and are not impacted by the current performance of the stock market-- a $100,000 death benefit last month is still $100,000 today and will still be $100,000 next month. Because life insurance policies are uncorrelated to market and economic conditions, investors value buying life insurance policies as a non-traditional asset to balance their holdings. Life insurance policies in the secondary market are more valuable than ever.

Would you abandon your home without selling it after years of making mortgage payments? Of course not, and no one should abandon a life insurance policy after years of making premium payments either. It is critical that the owner of a life insurance policy understands that he/she can use his/her policy to help cover the expensive costs of retirement, health care, and long-term care while still alive.

A life insurance policy owner can exchange his/her policy for a variety of benefits, such as tax-free payments for long-term care services, lifetime income from annuities, a reduced death benefit with no more premium payments required for the policy owner, or a lump-sum cash settlement.

Key Points
  1. Life settlements are flights to safety as assets during economic crisis.
  2. Life insurance is “uncorrelated” from economic conditions, because death benefit values are guaranteed.
  3. A $100,000 death benefit has not changed from last month to today to next month, no matter what is going on around us.
  4. Seniors are being hit hard by this crisis, not just because they are vulnerable to infection and fatality, but because their investments and income have taken a huge hit as the stock market has melted down.
  5. Many seniors will be facing a decision about making their next premium payment on a life insurance policy. Should they keep a policy, take any cash value instead, or just let it lapse?
  6. For any seniors struggling financially, the life settlement option could be a better move than:
    • Lapsing or surrendering a policy.
    • Liquidating investments or assets in a down market and locking in losses.
  7. This is an immediate financial solution for seniors:
    • A financial solution that can be accessed during a crisis.
    • The settlement is for a policy a senior already owns and has made premium payments on for years.
    • There are no fees to do a life settlement—there are no out-of-pocket expenses.
    • When a person settles his/her policy, the policy owner receives cash, which can often be tax-free and they are no longer responsible for premium payments.
    • The process can be completed from start to finish in ninety days or less.
    • The entire life settlement process is conducted remotely and there is no need for in-person meetings at any time. 
During the coronavirus pandemic, life settlements are immediate lifelines for seniors who could be struggling financially and own life insurance policies in danger of being abandoned, without realizing they could hold significant re-sale value. Senior clients have watched their investments and income take huge losses, and as many contemplate if they can afford to make the next premium payment on a policy, or are wondering what assets they can look to for value—a life settlement could be a much better option for them in this time of crisis.

About the Author

Chris Orestis, CSA is President of LCX Life and He is a nationally recognized senior care advocate and expert in specialty senior-living funding solutions. The author of two books, numerous published papers and articles, and a frequent industry speaker; he is the innovator that brought the LTC-Life Settlement into the market over a decade ago.