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Life Settlements for Modern Retirement Planning

Don't Let Your Life Insurance Policy Gather Dust: Explore Life Settlements for a Brighter Retirement

Brandon Selfors

Licensed Insurance Agent

Updated Mar 6, 2024
Published On: Mar 6, 2024
life settlement retirement planning

Life insurance has long been a cornerstone of financial planning, offering peace of mind for loved ones in the event of a passing. Yet, for many seniors, these policies can become a burden – especially when premiums rise and retirement budgets tighten. Fortunately, a strategy often overlooked yet crucial for modern retirement planning exists: life settlement planning.

While the concept might seem novel, the legal foundation for life settlements dates back over a century, established by a Supreme Court ruling in 1905. This well-regulated market offers seniors a valuable option: selling their life insurance policy for a lump-sum cash payout that can significantly boost their financial security.

The Alarming Lapse Rate and the Power of Life Settlements

A staggering statistic from Wharton highlights the need for exploring alternatives to policy lapse. Nearly 90% of senior life insurance policies lapse each year. This often occurs because premiums become unaffordable, leaving seniors with nothing but regret. Life settlements offer a solution, allowing seniors to recoup significant value from an underutilized asset.

In 2022 alone, the Life Insurance Settlement Association (LISA) reported that the average life settlement payout provided seniors with five times the cash surrender value offered by the original insurer. This substantial difference underscores the potential benefits of exploring life settlements.

Beyond Whole Life: Expanding Eligibility

Traditionally, whole life insurance policies were viewed as the primary candidates for life settlements. However, the market has evolved, and many term life policies can now qualify as well. This broader eligibility opens doors for a wider range of seniors to consider life settlements as a viable option.

A Surprising Disconnect: Seniors and Their Advisors

A telling study revealed that a significant portion of seniors – a staggering 79% – wished their advisors had discussed life settlements as a potential strategy. This disconnect highlights the need for increased awareness and education on the topic within the financial planning community.

Reframing the Policy: Your Life Insurance as a Valuable Asset

Imagine your life insurance policy not just as a death benefit, but as a valuable asset, similar to real estate. Life settlements create a secondary market for these policies, akin to Fannie Mae in the mortgage world. Life settlement brokers, acting as real estate agents for your policy, work to find the highest bidder through a competitive auction process.

Breaking the Insurance Monopoly: Empowering Seniors

Life insurance companies traditionally held a monopoly on policy value. Seniors were often unaware of the possibility of selling their policies for a much higher value than the cash surrender option. Life settlements empower seniors by offering them more control over their financial security.

Fueling Retirement Dreams: How Life Settlements Can Help

As retirement costs climb, seniors on fixed incomes often face financial challenges. The proceeds from a life settlement can be a game-changer, providing funds to enjoy a more comfortable retirement. Whether it’s facilitating a smooth estate transition, covering unexpected medical bills, or even boosting returns through a 1035 exchange into an annuity, life settlements offer a flexible and strategic tool.

Selling a Portion or the Whole Policy: Retained Death Benefit Option

Life settlements offer flexibility beyond full policy sales. Seniors can choose to sell a portion of their policy while retaining a retained death benefit. This allows them to access a lump sum payout while still providing some level of death benefit for loved ones.

Life Settlements Before Policy Alterations

Before considering policy reductions or changes that alter the original mechanics, seniors should explore life settlements. Surrendering or lapsing a policy represents a missed opportunity for potentially significant financial gain. Always consider life settlements before taking such steps to ensure you’re receiving the best financial guidance.

Planning is Key: Understanding Tax Implications and Responsible Spending

The proceeds from a life settlement offer seniors the freedom to utilize the funds as they see fit. However, it’s crucial to be aware of potential tax implications, particularly for amounts exceeding the policy’s cost basis. Consulting a tax professional can ensure proper planning and maximize the benefits.

Life Settlements and Long-Term Care Planning

As seniors explore alternative asset strategies to enhance retirement security, life settlements deserve consideration. However, qualification is essential. Generally, applicants must be 65 or older with an active term or permanent policy exceeding $100,000.

The Life Settlement Process: Similar to Selling a Home

The process of selling a life insurance policy through a life settlement broker mirrors the steps involved in selling a home. While timelines can vary, the overall process takes a similar amount of time.

Is a Life Settlement Right for You? Exploring Your Options

Life settlements can be a powerful tool for retirement planning, but they are not a one-size-fits-all solution. If you’re a senior interested in exploring this option, consider these steps:

  • Gather Information: Familiarize yourself with the basics of life settlements by conducting research and seeking professional guidance.
  • Compare Life Settlement Companies: Utilize resources like the Life Insurance Settlement Association (LISA) to find reputable life settlement brokers and compare offers from multiple companies to ensure you receive the most competitive payout.
  • Seek Professional Advice: Consult with a qualified financial advisor specializing in life settlements to discuss your specific situation and determine if this strategy aligns with your overall financial goals.

Remember, a well-informed decision is crucial. By educating yourself, exploring your options, and seeking professional guidance, you can unlock the potential of life settlements and leverage them to create a more secure and fulfilling retirement.

Disclaimer: This article is for informational purposes only and should not be considered financial advice. Please consult with a qualified financial professional before making any decisions regarding your life insurance policy or financial planning.

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Brandon Selfors / CEO

Life Settlement Broker

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