For business owners and individuals who were caught off guard, without sufficient cash resources, the months ahead may be difficult as you adapt to the new reality of this unprecedented economic crisis.
But perhaps, those hardest hit are retired seniors, whose nest eggs have lost a quarter of their value. Most people forget about life insurance as an asset. That’s why selling an unwanted life insurance policy, especially policies with escalating premiums or those on the verge of lapsing, is often a smart strategy for seniors who want to generate immediate cash flow. I would never suggest replacing needed insurance protection, especially at this time in which our future is much in question. Many times, executives have left their company with portable life insurance with a high death benefit. They own a policy, in which the annual premium is a burden to their own cash flow. They may consider lapsing the policy because it has no cash surrender value, however, selling the policy in the secondary market for a substantial cash payment equivalent to nearly 30% of the policy’s face amount can aid in meeting one’s objectives. A financial broker using life settlements can increase one’s net worth substantially by selling the unwanted asset, many times, thought to have no value. With this kind of cash windfall, it is a great time to invest back into the market.
During market downturns, having sufficient liquidity facilitates the ability to achieve a wide range of financial goals depending upon the senior’s net worth, emergency reserves, and cash flow objectives. Some “market savvy” seniors want extra cash to invest back into the market while stock values are low. They recognize an opportunity to leverage the financial crisis and need liquidity to seize it. Whereas, a senior who needs to rebuild their financial security may use unwanted life ins. As a source of cash to purchase a guaranteed income stream, such as investing in an income annuity. Their goal is to enjoy a comfortable retirement, free from the financial anxiety caused by market losses. Other seniors who are cash depleted may want to shore up their emergency reserves to get through the crisis without making withdrawals from their investments. For them, money is not the only king, but cash flow is essential for long term survival. The scenarios listed may be readily achievable (for seniors who are over age 65 and who qualify) by selling an unwanted life insurance policy in the secondary market.
Another consideration is to use the proceeds to purchase a Guaranteed Income Annuity. Awareness of annuities as part of a comprehensive retirement strategy also gained traction recently when President Trump signed into law the SECURE Act. The new law makes it easier for employers to include annuities in their retirement plan investment options for company employees.
Purchasing an annuity takes cash, which, for many, is scarce now. That’s where the proceeds from a life settlement can help. Many of our clients have been attracted to indexed income annuities because their monthly income can increase based on market performance, but that income will never decrease. By having a portion of retirement assets invested in income, annuities brings the best of both worlds.
We are experiencing a financial crisis and need relevant sound solutions. And for senior clients who must rely on portfolio withdrawals for monthly cash flow, the ability to use the cash proceeds from a life settlement is undoubtedly a more prudent course of action than allowing clients to lock in losses. A correction is never the time to sell, your better option is to ride the market back up because once you sell your loss is locked in. There are many better options to take.
Whatever your financial and liquidity challenges, maybe during the current economic crisis, now is the time to consider whether selling an unwanted life insurance policy is the most suitable option to generate cash flow.
Janice Gough is a Financial Advisor. We are located in Palm Springs and can be reached by calling (760) 251-7724 or (650) 200-8291 or via email at Janice@GoughFinancialSvcs.com. Visit our website to sign up for our Financial newsletter, offering cutting edge information on ways to improve financial outcomes.