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Big Secret: What the Insurance Industry Doesn't Want You to Know

personal insurance and financial matters

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Thursday, 29 August 2019 03:44 PM Current | Bio | Archive

There are over 150 million life insurance policies with $12.3 trillion of in-force death benefit owned in the United States. But one of the secrets of the insurance industry is that nine out of ten life insurance policies are in danger of being abandoned before paying out a death benefit.

This means the owners of these policies will pay premiums for years, but the vast majority of the owners will abandon their policy getting little to nothing back in return. In fact, $684 billion of death benefits were abandoned by the policy owner in 2017.

Insurance companies go out of their way to limit the public’s knowledge that life insurance policies are legally recognized as assets of the owner, and that there is a secondary market where policy owners can sell off a policy, that they might otherwise abandon, through a life settlement. Insurance companies make massive profits every year from people lapsing or surrendering their policies because they collect premium payments for years, and then when the owner abandons their policy the insurance company keeps all that money and does not pay out a death benefit.

When policy owner uses a life settlement to get money for their policy instead, that means the insurance will eventually pay out on the policy, cutting into their profits.

Seniors in particular fall into this trap. They own over $230 billion of death benefit that on an annual basis could potentially qualify for a life settlement — but too few of them realize this option is available to them.

Should seniors abandon one of their most valuable assets like this?

The answer is no.

After years of premium payments they should no sooner abandon their policy than they would abandon their home after years of mortgage payments. A life insurance policy coveys the same personal property ownership rights as a home.

And just as the owner of a home has the right to sell their property, so too does the owner of a life insurance policy.

Before the owner of a life insurance policy would abandon their asset they should first look to the life settlement market to find out what the actual re-sale value of their policy is. The secondary market for life insurance can pay as much as 10x more than any cash surrender value to the policy owner, and it is certainly a better option than lapsing a policy after years of premium payment for nothing in return.

The Big Secret

1- 90% of life insurance policies are in danger

2- Life insurance is legally recognized as an asset and personal property

3- Life Settlements are a growing financial option for seniors

4- Life Settlements can pay out 7-10x more than cash value on average

Taking advantage of the secondary market value of a life insurance policy is a much better strategy than lapse or surrender. Once a policy has been settled, the value can be used to increase income, estate preservation, delay liquidating investments and assets, and it can protect a family from being financially ruined by the high costs of long-term care.

In 2018, there were $3.8 billion of life settlement transactions, and the market is trending to be even higher in 2019. Today’s secondary market provides policy owners with access to a variety of solutions tailor made to address their unique financial needs. Instead of abandoning a policy after years of premium payments, the policy owner can use this illiquid asset to create a lifetime income stream by exchanging the policy for an annuity.

The owner could also address the expensive costs of long-term care by exchanging the policy for a tax-free Long-Term Care Benefit Account (LTC-HSA). The policy owner could also elect to keep a reduced paid-up death benefit by exchanging the policy for a Retained Death Benefit without being responsible for any future premium payments. In addition, the owner could elect to take a lump-sum cash payment in for their policy that on average could be 7-10x greater than any remaining cash surrender value.

The good news is that the secret is getting out. Driven by TV commercials, media attention, and more understanding and acceptance by insurance and financial advisors, the number of settlements transacted is growing. The combination of growing consumer awareness, advisor adoption, a favorable tax and regulatory environment, and the financial challenges confronting an aging baby boom population will continue to propel growth in this market, and help seniors tap into billions of dollars of available liquidity coming out of an asset they already own. 

Chris Orestis, executive vice president of GWG Life, has more than 20 years of experience in the insurance and long-term care industries and is nationally recognized as a healthcare expert and senior care advocate.

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ChrisOrestis
Today’s secondary market provides policy owners with access to a variety of solutions tailor made to address their unique financial needs. Instead of abandoning a policy after years of premium payments, the policy owner can use this illiquid asset to create a lifetime income stream
policy, market value, life, hsa
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2019-44-29
Thursday, 29 August 2019 03:44 PM
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