If you’re over the age of 65 and worried that’s you’ll outlive your retirement assets, you are not alone.
Research shows that that the single biggest fear for most retirees is running out of money before running out of time.
Volatility in the financial markets and high inflation have fueled the anxiety that many retirees experience as they witness the erosion of their purchasing power and their portfolios.
For most seniors, achieving peace of mind in their Golden Years requires having a source of guaranteed income that lasts as long as they do. While Social Security furnishes some monthly income, it replaces only about 37 percent of past earnings. And few employers today provide pensions.
So what’s the solution for seniors who are seeking the peace of mind that comes with having a guaranteed income stream?
If you are over the age of 65 and own a life insurance policy you no longer need, you may be able to qualify for a life settlement. The payout from selling your policy in the secondary market may be sufficient to purchase an annuity that provides a guaranteed income stream for life.
How many seniors sell their policies?
Thousands of seniors from all income brackets sell their policies every year. They recognize that doing so is a smart alternative to allowing a policy to lapse or accepting a low cash surrender value.
The proceeds from liquidating an unwanted insurance policy are far greater than the cash surrender value, if any. And, the payout from selling the policy may be used for any purpose, including for the purchase of an annuity.
In 2022, a total of 3,057 policies with a death benefit of $4.5 billion were purchased by institutional buyers in the secondary market. That figure compares with 2,937 policies with about $4 billion in face value in 2021. The amount paid to consumers for selling their policies in 2022 was $823.6 million.
While the average amount paid to the seller hovered around 20% of the policy's face value, last year one institutional buyer paid the seller an average of 46% of face value.
According to industry researcher Conning, Inc., the future of the life settlement market is optimistic. "Consumers are likely to seek additional sources of income to offset economic pressures. Investor demand for alternative assets is forecast to remain strong."
Case Example: Senior uses proceeds from Life Settlement to purchase annuity
Our brokerage partner recently shared a life settlement success story involving a 90-year-old female who used the payout from selling the policy to purchase a guaranteed income annuity.
The case involved a $1.8 million life insurance policy which the insured had purchased 20 years ago. She could no longer afford the escalating premiums and sought a solution that would allow her to recoup at least a portion of the money she had invested in the policy over the years. The policy’s cash surrender value was only $5,000 and allowing the policy to lapse was not an option.
With the help of her insurance advisor, the insured agreed to sell the policy and was stunned to receive an offer for $512,000 ─ 92% of the policy’s cost basis of $544,000.
The insured and her family were stunned to receive such a substantial windfall for the policy and decided to use the bulk of the proceeds to purchase a guaranteed income annuity.
Sales of Annuities on the Rise
As life settlements gain in popularity among older seniors, so too do investments in guaranteed income annuities.
A recent survey revealed that 73% of retirees who own an annuity with a guaranteed lifetime income have greater peace of mind and feel more confident about their financial future.
Last year was a record year for the purchase of annuities. In 2002, consumer investors who have been jolted by the economic volatility of the markets sought guaranteed income protection resulting in $323 billion in total annuity sales.
In the fourth quarter of 2022 alone, bank sales of annuities more than doubled to $21.8 billion, according to a 2022 Limra survey.
Bottom Line: The coupling of a life settlement with the purchase of an annuity can be a powerful tool for seniors who are seeking the financial tranquility that comes from guaranteed lifetime income.
Our team at Trust Life Settlements will be happy to answer your questions and provide you with a no-obligation appraisal of your policy’s value.
We’ll also explain the brokering (auction) process and why it is essential to obtaining the highest possible value for your policy.