There’s a time during our lives when life insurance can give us incredible peace of mind. When our children are young, or when they’re heading off to college, it’s a relief to know that if something happened to us, their world wouldn’t end.
The family would still have money to live on. Tuition would still be paid. The mortgage would be covered.
At a certain point, though, many of us find that we don’t need our life insurance the way we used to. Our children may have grown up and become self-sufficient. Perhaps we’ve divorced the spouse who was going to need the extra income.
When this happens, life settlements can be an excellent way for policyholders to liquidate an asset from which they no longer are getting much value.
Working through a financial advisor and a life settlement broker like Ashar, policyholders sell their policies on the Secondary Market for more than the cash value of the policy. The proceeds from the sale can then be used for anything, from long-term care to helping pay for a grandchild’s college.
But as the Wall Street Journal points out in a recent article on longevity and life insurance, there’s another reason a life settlement may be a prudent choice for some policyholders.
Some older policyholders are suddenly discovering that their permanent life insurance policies expire at age 100, meaning that the coverage will cease and the carrier will pay out whatever cash value has accumulated once they reach their 100th birthday.
In the past, an expiration date like this wouldn’t be too much of a problem, as fewer Americans were living to age 100. But today, life expectancy is increasing, medicine is improving, and more and more people are living up to and past 100.
The idea of losing the coverage they’ve spent decades paying for, simply because of a birthday, is naturally upsetting to many of these seniors. In these cases specifically, it’s highly prudent to explore a life settlement. Selling the policy could net a policyholder much more than the policy’s cash value, and allow them to access the funds tied up in that policy when they actually need them.
But policy expiration isn’t the only issue that we’ve been seeing caused by increased longevity.
As seniors are living longer, their chances of needing intensive medical care or long-term care are rising, too. Many families are finding that long-term care insurance and retirement savings aren’t enough to cover the rising costs of these services.
This can create a massive financial burden for not only the senior, but also his or her grown children and other loved ones.
This is especially true because long-term care is exactly that: long-term. Many seniors need care for a decade, or even longer. It’s not something most families can simply push through as they might be able to if the costs were only going to last for a year or two.
For this reason, many of the clients we work with at Ashar use the funds from a life settlement to pay for long-term care.
They may structure it as a long-term care settlement, placing the lump sum they receive into an account that makes payments directly to the long-term care facility. Or, they may have an adult child or other family member manage the payments.
Whatever they choose, having those funds available can ease the financial stress on a family, allowing them to shift their focus back onto what really matters: each other.
Longevity is an important financial topic for seniors today. For more, read our post “The Most Important Topics in Longevity Planning.”