The over-65 senior population in the U.S. is on the threshold of a major expansion as 78 million aging baby boomers begin reaching their retirement years. But for the millions of boomers who enter their retirement years cash-strapped and saddled with mortgage debt, making their savings last for 30 years will be a challenge.
A report released recently by the Bipartisan Policy Center noted that older seniors are carrying larger mortgage balances into their retirement years, potentially impacting their ability to finance their retirement lifestyle and long-term care expenses in their custodial years. And when one takes into account data from the Federal Reserve that the typical household net worth for baby boomers in 2013 was $143,000, it’s likely that many baby boomers will be exploring all possible options to help them finance their golden years.
It’s a known fact that robust markets are created when products and services are aligned with the demands and needs of consumers. As a life settlement provider with a pulse on the marketplace, we believe the stars may be aligning for older baby boomers and others who have been pondering whether a life settlement could be a solution to help finance their retirement years.
Below are three primary reasons why the current conditions may be favorable to policy sellers seeking to optimize the value of their policies in the secondary market:
- Current Stock Market Conditions
For seniors who have been contemplating life settlements but have hesitated to take the next step, we like to quote the term, “carpe diem.” As noted in our recent article published by Trusts & Estates entitled “Stock Market Volatility Bodes Well for Secondary Market Policy Sellers”, the uncertainty of the stock market often drives institutional investors to uncorrelated asset classes that aren’t subject to the ups and downs of Wall Street. When more institutional capital flows into the secondary market for life insurance, the offering price for policies moves up a notch – ultimately benefitting the consumer.
- Expanded Regulatory Environment and Acceptance by National Organizations
Life settlements are now regulated in 42 states and consumer knowledge of the secondary market is expanding. Additionally, the National Conference of Insurance Legislators (NCOIL) adopted a model act in 2010 mandating that insurers provide written notice to senior policy owners who are facing the lapse or surrender of their policies. This written notice must clearly state that seniors have options regarding such lapse or surrender, one of which is a life settlement. National organizations such as the American Cancer Society, and federal government agencies such as the National Institutes of Health, are promoting life settlements as a source of funds to pay for medical expenses and long term care.
- American Taxpayer Relief Act (ATRA) leaves many over insured
Two years following the enactment of the 2012 American Taxpayer Relief Act (ATRA), many families that had purchased life insurance to finance estate taxes are now making premium payments for multimillion dollar insurance coverage they no longer need.
ATRA set the basic exclusion amount at $5 million per individual (adjusted upwards each year for inflation), resulting in an adjusted exclusion amount of $5.43 million in 2015. Coupled with exemption portability for married couples, today spousal owners of estates valued at $10.86 million or less are evaluating their options as it relates to the best exit strategy for large policies that have outlived their original purpose.
For those who may be considering a life settlement, seniors should conduct their due diligence. Be sure to choose a life settlement company that is a member of LISA and one that is properly licensed in the state in which the senior resides.
About the Author:
Samantha Butcher is Director of Operations for Abacus Settlements, LLC. Abacus is a licensed life settlement provider with offices in New York and Tennessee. Butcher may be reached in the Franklin, TN office at (615) 732-6241 or by e-mail at firstname.lastname@example.org.