Retiring boomers should consider life settlementsLifeHealth Pro
Written By Stephen E. Terrell
Baby boomers are known as the generation of change. Racing toward the golden years, they are on a collision course with a retirement crisis. However, creative, open-minded agents can help save the day.
Born between 1946 and 1964, baby boomers embody the largest population surge in U.S. history. They have defined the world's marketing efforts and grasped the attention of advertisers, big business, media and policymakers; and they continue to do so as they transition into traditional retirement age. The life insurance-settlement industry has been preparing for a climb in life-settlement transactions during the next two decades, due in large part to an inevitable baby boomer retirement crisis.
Sadly, in the wake of a real-estate bubble, high unemployment rates and a plummeting stock market, one-out-of-four baby boomers has put little or no savings toward his or her retirement. Although the oldest of the boomers are turning 65, most simply cannot afford to retire and will be forced to keep working into unprecedented ages.
As boomers redefine retirement, they will look for alternative financial methods, such as life settlements, to help fund ongoing and new expenses. Many Americans still don't know a life settlement is an option when they no longer need or cannot afford life insurance. The 75 million-strong boomer demographic is the most insured generation of our time, yet more than 85 percent of life-insurance policies never reach maturity.
This happens for a number of reasons. Life insurance premium payments often get thrown-in with other expenses that are left unpaid during household budget tightening. The most popular life-insurance policy in America, term-life insurance, usually expires before the policyholder reaches retirement age. Further, term policyholders often choose not to renew a policy due to changes in life circumstances such as children reaching an age of self-independence or other factors such as rising premium costs. Policyholders can sell their life-insurance policy for cash in a transaction called a life settlement, and a life-settlement provider continues to pay the purchased policy premiums, collecting the full amount when the policy seller passes away. The value of a life settlement varies depending on the life expectancy of the policyholder at the time of sale, and on the written full value of the policy. A life settlement always will be less than the full value of the policy, but much more than the amount a policyholder would receive if he or she let the policy lapse or surrendered it to the insurance company. Often, a life settlement offers seven-to-eight times more funds than surrendering the policy.
Statistics prove boomers want to be informed if they are eligible for a life settlement, and one-infour boomers seriously would consider selling an unneeded policy. We recently performed a nationwide baby boomer survey with research company ICR.
Below are some of the results gleaned from that study:
- 79 percent of boomers felt financial planners and insurance professionals should be informing policyholders about life settlements as a financial option;
- 29 percent would consider a life settlement to help fund retirement; and
- 76 percent believe it is important for people older than 65 to keep life-insurance coverage in force.
The earlier a policyholder starts thinking about a life settlement, the more attractive the option will be later in life. The Lifeline Program developed guidelines for agents on what they should recommend to customers at different ages referred to as the "50/60/70 Plan." Smart decisions regarding a lifeinsurance policy today equates to higher funds and increased likelihood of satisfaction with a settlement.
- For customers in their 50s, make sure their life-insurance coverage will last into their 70s. If a customer has term-life insurance, extend the term or purchase the least expensive convertible-term policy available. Later, when the customers are in their 70s, they can convert it to a permanent policy and perform a life settlement.
- Policyholders in their 60s should review if the initial reasons to purchase the policies still exist. Spouse death or divorce often changes the need for protection or grown children lessen the need for insurance coverage. Whatever the case, they need to remain insured into their 70s. People this age in failing health may opt to appraise their insurance coverage immediately with a life-settlement provider.
- Once a customer reaches his or her 70s, contact a life-settlement provider to verify if he or she is a good match for a life-settlement transaction.
A life settlement is a smart financialplanning option for customers concerned about retirement costs. This transaction converts a former liability into an asset. A settlement also means a professional independent insurance agent continues to receive an annual commission, in addition to commission on the life settlement.
The life-settlement industry anticipates a paradigm shift in the way Americans finance retirement, sparked by baby boomers exploring new resources to compensate for recession-related losses. Now is the time to begin discussing the option of a life settlement with customers and to ensure they will be prepared for a profitable settlement in the future.