As college tuition costs continue to soar each year, many parents worry how they will be able to afford their children’s higher education costs. For those families without the financial means to pay for their children’s education, students have taken out loans averaging $29,200 per student. As of 2020, the total amount of student loan debt in the U. S. reached $1.56 trillion.
Unfortunately, the COVID-19 economic crisis has further disrupted the lives of many working families, especially those who were impacted by layoffs in the retail, transportation, and service industries .Their ability to earmark money to pay for their children’s college education is not an option.
So what’s the solution?
75% of Grandparents Want to Help Pay for College Education
In some families, grandparents have stepped in and taken an active role.
According to a Fidelity Investments survey, nearly three-quarters of grandparents think it is important to help their grandchildren pay for college. Fidelity notes that on average, grandparents contribute approximately $25,000 for their grandchildren’s education.
There are a variety of financial methods that grandparents use to help fund their grandchildren’s education. Some are setting aside money in designated savings or investment accounts earmarked for college costs. Others have opened 529 college savings accounts or set up a custodial Roth IRA in a minor grandchild’s name. Still others plan to leave cash inheritances that grandchildren can use for college.
Most of the financial methods mentioned above require a substantial amount of pre-planning on the part of the grandparent.
The secondary market for life insurance: Another option for grandparents
There is yet another but often unknown solution that some grandparents are taking advantage of. It involves a life settlement – a transaction that involves selling an unwanted policy to an institutional buyer in the secondary market for life insurance. In order to qualify, the policy seller must be over the age of 65 and meet specific criteria as discussed below.
The secondary market for life insurance originated more than 20 years to provide a financially attractive exit strategy from unwanted life insurance policies owned by seniors over the age of 65. Most policies that are sold in the secondary market were purchased years ago as income protection for their families
in the event of the breadwinner’s death. But as seniors advance into their retirement years and their adult children have become financially stable, many seniors feel burdened by expensive annual premiums for policies they no longer want or need.
Fortunately, for seniors who meet the qualification guidelines, the secondary market for life insurance gives policy owners powerful options to monetize and maximize the liquidity of their unwanted life insurance policies.
Qualification Guidelines for a Life Settlement
The life expectancy of the insured is the primary determining factor when it comes to finding a buyer in the secondary market. The shorter the life expectancy, the greater the chances that a secondary market buyer would purchase the policy. At a minimum, the seller must be 65 years of age or over with a life expectancy of 12 years or less. Individuals who are less than 65 years of age may qualify, but they must have a serious health issue and a life expectancy of 6 years or less.
Family Uses $145,000 from Life Settlement to Pay for Grandchildren’s Education
This case example was transacted by one of our industry partners and involved the secondary market sale of an $800,000 life insurance policy that was no longer needed.
The insured was a 91-year old grandfather who was feeling the pinch of annual premiums that had escalated to more than $80,000. The policy had no cash surrender value and the insured was hesitant to allow the policy to lapse.
The family consulted their insurance agent to discuss the options and immediately decided that a life settlement was the best course of action. The policy did not have an extension rider which presented immediate challenges in terms of identifying willing institutional buyers. Without the rider, a prospective buyer could not collect the death benefit if the insured lived beyond age 100.
In spite of the odds, the life settlement broker was able to negotiate offers from two secondary market buyers and received bids in the amount of $100,000 and $145,000. The family was thrilled to accept the highest bid for $145,000 which they viewed as a cash windfall to pay for the grandchildren’s education.
Life settlements provide seniors over the age of 65 with a sensible exit strategy from unwanted policies that have become a financial burden. For retirees who have been financially impacted by the COVID-19 crisis, this may be the time to research your options to generate immediate cash by selling an unwanted policy.
The first step is to contact a life settlement professional to determine whether you meet the qualification factors for a life settlement. At Trust Life Settlements, we’ve helped hundreds of seniors like you optimize and monetize the value of their unwanted insurance policies.If you want to learn more about life settlements and are curious whether you qualify, contact us at 1-800-216-2513. We’ll be happy to discuss your questions and provide you with a free no-obligation quote on the market value for your policy.