This isn’t some new Law and Order series, unfortunately. This is real life.
Over the past year, at least seven big life insurance companies have raised premiums on a range of Universal Life Insurance policies, many of them targeting increases on seniors. From this, the headlines have ensued:
Retirees Stung by Universal Life Costs – The Wall Street Journal (August 10, 2015)
Surprise: Your Life-Insurance Rates are Going Up – The Wall Street Journal (December 4, 2015)
Life Insurers Pass Pain of Low Rates on to Consumers – The Wall Street Journal (March 20, 2016)
Rising Premiums for Universal Life Insurance Draw Scrutiny – The New York Times (May 20, 2016).
Why Some Life Insurance Premiums are Skyrocketing – The New York Times (August 13, 2016)
The news stories provide some compelling – heartbreaking, even – “ripped from the headlines” stories:
• A retired social worker had been paying $700 a year for his Universal Life policy ever since the 1980s. Last year, he received notice that his premium had risen to $6,000 a year. Unable to pay the new rate, he canceled the policy and took a job to supplement his income—at 71 years old.
• When a retired couple’s life insurance bill nearly doubled, they were forced to drop their policy, simply walking away from a policy on which they’d paid $55,000 in premiums over the past 25 years. The return on their investment: the $4,100 in cash that remained in the account.
• A couple, ages 62 and 57, who are both still working, just saw a 40 percent rise in their premiums. They are now cutting back on spending and expecting to work longer to achieve their retirement goals. “You think you’re doing the right thing, and it goes up in smoke,” they said.
“It does not take much imagination to imagine that millions of UL policyholders will be adversely affected if insurers are free to raise rates,” according to James H. Hunt of the Consumer Federation of America, which has called on state regulators to investigate these questionable rate increases. One policyholder decried that insurers should “bite the bullet” because they have historically profited with other people’s money, arguing that carriers should “tighten their belt” rather than seek more revenue and returns from existing policyowners.
Can you, as an advisor, relate these stories to your client’s own experience? Are your clients faced with the lapse or surrender of their policies? And, more importantly, if it was any other asset and your client was considering terminating it, what would you do?
Seniors – and their Advisors – Have Better Options
A better option to being forced out a life insurance policy is to sell the policy. In all instances – as a matter of law – buyers have to pay more than the cash surrender value. But, in fact, seniors selling their policies generally receive 4 to 10 times more than the policy’s cash surrender value.
By selling the policy, the policyholder can receive the full and fair market value of the policy—often as much as $100,000 or more on a $500,000 policy—and use the return to help manage increasing expenses or reinvest it to generate future income. Even if some level of coverage is still desired, the policyholder can opt for a Retained Benefit Settlement that allows a portion of the benefits to be retained—without having to pay additional premiums. (For more on Retained Benefit Settlements, see Here comes the sun: When Retained Benefit Settlements save the day.)
Sound too good to be true? Any client facing a multi-thousand dollar insurance rate hike may think so. But life settlements are very real, very valuable, and very safe.
Further, as I’ve discussed previously, life settlements are one of the most highly regulated financial services transactions in the US today. And, for the past four years, the only consumer complaints stemming from these transactions have been filed against insurance carriers who have attempted to stop the settlements from taking place. (For more on what makes Life Settlements one of the most secure senior financial services available today, see Myth Busters: Top 3 Reasons to Recommend Life Settlements.)
The secondary life insurance market can help you generate good news.
Imagine these headlines: “My financial advisor helped me achieve my retirement dreams.” Or, “Advisor saves a client’s policy from the insurance company’s trash pile: Delivers triple digit returns on the sale of a life policy.” Equally as powerful, you may receive a heartfelt “thank you” from your client.