The final month of 2023 brought the long-awaited good news that the Federal Reserve Board may be done hiking interest rates. And as a consequence, the financial markets rallied in early December and the S&P reached a high point for the year.
For most consumers, things are starting to look brighter as we enter the New Year!
But there’s also the bad news.
Many consumers, especially retirees living on fixed incomes, were forced to rack up credit card debt and high-interest loans to make it through the tough inflationary period spanning several years.
Now, many seniors are wondering how they will ever find the cash to pay off their debt.
For seniors over the age of 65, the proceeds from selling an unwanted life insurance policy (life settlement) may provide the unexpected source of cash they need to achieve financial stability.
More Seniors Are Carrying Debt
Overall, Americans are now carrying more than $1 trillion in credit card debt with an average interest rate of just over 21%.
For seniors, high inflation and rising interest rates over the past several years have seriously eroded their purchasing power. On top of that, market downturns have negatively impacted retirees' investment portfolios, reducing their retirement income and forcing them to take on debt to meet financial obligations.
Among Americans 75 and older, 53% carried debt in 2022, compared with 21% in 1989, according to the Federal Reserve’s Survey of Consumer Finances, released in October 2023.
According to a 2023 survey from Clever Real Estate, 71% of retirees have debt not related to their mortgage with an average balance of $19,888. The survey report noted that some of the main reasons retirees carry debt include changing market conditions, depletion of savings, credit card balances, mortgages, car payments, student loans, health care expenses, family obligations, and emergencies.
Why Indebtedness Matters to Most Seniors
Many seniors feel it is important to leave a cash legacy or other assets to their loved ones when they die. Carrying too much debt can jeopardize that objective.
While most heirs do not necessarily inherit their parents’ debt outright, any cash or assets that the heirs may have otherwise received at the end of the estate administration and probate process may be depleted due to probate laws that require certain debts be paid before heirs receive what’s left over.
Generally speaking, survivors of deceased loved ones are not directly responsible for their parents’ debt unless they share legal responsibility for repaying as a co-signer or a joint account holder.
Federal student loans are usually discharged when a borrower dies. Personal loans and credit card debt are considered unsecured loans, so if the estate does not have enough assets to pay these loans, the creditor has no other options to collect the debt.
According to the probate process in most states, for those who die with unpaid debts, their debts are generally paid out of the money or property left in the estate. If the estate can’t pay it and there’s no one who shared responsibility for the debt, it may go unpaid.
For example, in the State of Florida, probate laws set a specific order in which a person's final expenses should be paid. Priority is given to the costs of estate administration, attorney fees, followed by funeral and burial expenses. Other debts that must be paid include taxes, debts owed to public assistance programs, and medical expenses.
Why Selling a Life Insurance Policy Could Be the Solution
Many seniors discover that as they advance in age, their financial priorities change.
For example, a life insurance policy that may have been purchased many years ago for income replacement during their working years is no longer needed for that purpose.
In many instances, seniors find that their life insurance policy has become too expensive to maintain and the insured can longer justify the financial sacrifice to keep it.
Fortunately for them, the secondary market for life insurance provides an option for seniors over the age of 65 who want to receive the highest amount possible for their unwanted policy.
The payout for most life settlements averages around 25% of the policy’s face value, but many life settlement offers have gone as high as 45% or more. The amount of the offer is determined by a number of factors, including the insured’s age, life expectancy and current health status.
For example, for a 78 year old senior who owns a policy valued at $150,000, a payout of $37,500 (25% of death benefit) could be the financial windfall he is seeking to pay off debt and achieve financial stability.
If you want to learn more about how a life settlement could benefit you, or if you are interested in receiving an immediate estimate of your policy’s value, feel free to reach out to us at 800-216-2513, or use our convenient online calculator.