For clients concerned about financial shortfalls in old age, advisors may want to suggest they sell their life insurance.
Clients concerned about financial shortfalls in old age may want to consider selling their life insurance policies. Here’s how advisors can help.
Sometimes when an elderly client needs funds, it can make sense to help them cash out of an unnecessary life insurance policy.
The secondary market for existing life insurance policies, in which sales are known as life settlements, has been around for several decades. In this market, individuals and companies purchase existing insurance contracts from policyholders at a discount to face value, hoping they’ll turn a profit when the insured dies and they collect the death benefit.
While policyholders end up selling the policies at discounts, these transactions can still make sense for some clients who no longer need them. Occasions this might be appropriate include: when a spouse has passed away; when a client can no longer afford to pay premiums or when clients are suffering from terminal illnesses and their life expectancy has suddenly narrowed.
Recent tax laws and improving life-expectancy estimates may make selling a life insurance policy an even more attractive option for some clients in these situations.
Clients with whole life policies could profit from life settlements similar to clients with other forms of permanent life insurance, such as universal and variable life policies. Clients with term life policies that are not convertible to a permanent plan may not find buyers willing to pay an appealing price, since the buyer risks not being able to collect a death