Life Settlements as Financial Planning Option
There are a variety of factors that are driving the importance of life settlements as part of the holistic financial planning process.
First of all, the financial landscape has changed significantly over the past decade. Sustained low interest rates have made it more difficult for investors to generate income, while more volatility in the equity markets has made seniors gun-shy about banking on predictable returns from stocks, bonds and other traditional investments. The result is that the psychology of seniors is fragile, even to the point that one survey found more than three in five said they fear depleting their assets more than they fear dying.
Second, seniors are becoming increasingly well-informed about life settlements as a possible supplemental retirement income strategy. This growing awareness makes it inevitable that a wider swath of financial consultants will be asked about life settlements by seniors seeking to find out if they are viable financial planning options for them to consider.
Third, there is a growing chorus of voices calling for more pro-active and transparent disclosures about life settlements. Developments in some state legislatures – such as Florida – portend that life insurance carriers may eventually be obligated to inform clients about the life settlement option for policies that are determined to no longer be needed or affordable, prior to lapsing the policies. This Senior’s Right to Know movement may eventually create a duty to inform for consumer advisors, so financial consultants who seek to be ahead of the curve are already engaging in more pro-active consultation with seniors about their life insurance assets.
For most seniors, the decision to purchase a life insurance policy came down to this basic idea: they were trying to provide financial relief for their loved ones in the event of their untimely death.
Today, however, many seniors are in a different place than when they first purchased their life insurance policies. For many, their kids have turned into adults and have begun their own families, assuming the personal financial responsibilities that each generation of parents has to provide for their own kids. For others, their income has tapered off in retirement, transforming those annual premiums that were once just another expense in the family budget into a financial burden.
Regardless of the reasons, if your client decides that they no longer need or can no longer afford their life insurance policy, they have a right to know they have options to consider for what to do with that policy.