More seniors are discovering that they can monetize their unwanted life insurance policies to meet a variety of financial challenges. According to former U. S. Senator E. Benjamin Nelson from Nebraska, “Many American families today are facing financial security challenges and need to know their life insurance policies may be able to be monetized to help them address those financial needs.”
A life settlement is the sale of the insured’s life insurance policy to an institutional investor, preferably with the help of a life settlement broker. The insured receives an upfront cash payment that is substantially greater than the policy’s cash surrender value, and the ownership of the policy is transferred to the purchaser of the policy. The buyer is responsible for paying the policy’s premiums, and when the insured passes away, the policy’s death benefit will be paid to the buyer.
Why Do Seniors Sell Their Policies?
Their Financial Needs Have Changed
Most seniors consider a life settlement when their circumstances have changed and keeping the policy in force no longer makes “financial sense.” Most life insurance policies were purchased to provide income replacement for one’s family members in case of unexpected death. But as seniors age and their children become financially stable adults, the original need for the policy no longer exists.
Premiums Are Too Expensive
For many seniors, the premiums have become too expensive. This is especially true for seniors who had purchased universal life policies where the premiums and the cost of insurance escalate as the insured ages. Rather than allow an expensive policy to lapse or accept a low surrender value, a life settlement is a far more preferable option.
One of the most common reasons that seniors monetize their life insurance policies is to help pay for medical expenses. According to a recent article by AARP, a 65-year-old couple retiring this year will need $240,000 to cover future medical costs. But according to a 2015 Government Accountability Office study, Americans between the ages of 55 and 64 have accrued (on average) only $104,000 in retirement savings. Considering these statistics, the demand for funds to pay for medical expenses will increase as the current population ages.
Roughly half of Americans turning 65 today will require long-term care. According to a report published in 2017 by Genworth, the national median cost for a private room in a nursing home is approximately $8,100 per month, and an assisted living facility costs $3,750 a month. The proceeds from a life settlement can be used to supplement private long-term care policies to finance care in private facilities. While Medicaid may be an option for those with minimal assets, Medicaid facilities often aren’t of the same quality that one would experience in facilities financed by private insurance.
Financing for Continuing Care Retirement Community (CCRC)
Some seniors use the proceeds from life settlements as a down payment or entry fee to move into a Continuing Care Retirement Community. CCRCs are residences that provide a continuum of care — from independent living to assisted living to skilled nursing. These are designed to enable seniors to remain in a single residential location as they advance in age. This is particularly attractive for seniors with declining health conditions or couples in mixed health. While CCRCs are the preferred choice for upper-income seniors, they are the most expensive long-term-care solution available due to the high quality of care. Most require a one-time entrance fee and monthly maintenance fees. Entrance fees (down payment) range from $60,000 to $120,000, and monthly maintenance fees from $500 to $3000.
Handicap Accessible Home Modifications
Many of today’s seniors prefer to “age in place” rather than move into retirement or assisted living communities. Some seniors are using the proceeds from life settlements to finance modifications to their existing homes but at substantial cost. Examples of the most common modifications include:
- Wheelchair accessibility such as entrance ramps
- Lowered counters and cupboards
- Entry doors and hallways widened to 36” for wheelchair or walker access
- Bathroom remodeling, including toilet seat height adjustments, installation of grab bars, sinks heightened to allow for wheelchair access, bathtubs replaced with walk-in tubs or roll-in showers
Helping Grandchildren with College Tuition or Student Loans
Many grandparents who may not have been financially stable years ago to help with their grandchildren’s college tuition are discovering that life settlements may be a source to help relieve their grandchildren of burdensome student loans. According to a recent article in Forbes, student loan debt is now the second highest consumer debt category — behind only mortgage debt — and higher than both credit cards and auto loans. As of 2017, the total amount of student loan debt soared to $1.3 trillion in the U.S., and the average student in the Class of 2016 had $37,172 in student loan debt.
According to Darwin Bayston, President of the Life Insurance Settlement Association, “Our industry is thriving today because a life settlement offers an attractive option for seniors who no longer want or can afford a life insurance policy, and the market for those transactions is safe and well-regulated.”
If you are interested in learning more about life settlements, or if you have questions about selling your policy, call us at 800-216-2513. We’ll be happy to provide you with a free policy appraisal.