Seniors have several options to choose from to help get the most out of their retirement years. Downsizing your home is one of the most popular choices, but did you know, you could also downsize your life insurance? You might ask yourself, why would I downsize my life insurance? You would do it for the same reason you would choose to downsize your house. You decide that you just don’t need as much you once did now that the kids are out on their own.
We recently had a financial advisor contact us about a $500,000 convertible term insurance policy, with no cash value, on his 74-year-old male client, Paul. The policy was originally purchased for business purposes. His client had just sold his business and was looking forward to spending more quality time with his wife, children and grandchildren. This is just the kind of policy that most policy owners let lapse without ever checking for fair market value (FMV). If he just lapsed the policy, he would receive nothing in return even though he had paid premiums for almost 20 years.
Similar to most real estate transactions, in a life settlement, there is a buyer’s rep and a seller’s rep that each represents the best interest of their party. We appraised the policy and began negotiations within the secondary market, creating a competitive bidding auction between licensed, regulated life settlement providers (who are the institutional buyer’s representative) to obtain fair market value. As a result, we were able to send a check to Paul for $43,000. Paul had a number of options for this “found money” and was thankful that his advisor suggested a policy appraisal to check for fair market value rather than just throwing it away.
Most seniors are unaware that their life insurance is an asset that can be appraised and sold just like any other valuable asset – such as homes, cars, collectibles, jewelry, antiques, securities, etc. This lack of awareness can cause a senior to forfeit a policy back to the insurance carrier for pennies on the dollar and leave six - seven figures of settlement value on the table.
Be sure to check with your financial advisor, attorney, or CPA before surrendering any life insurance. They will be able to explore several policy exit strategies with you as well as the option of getting your policy appraised. This will help you make an informed decision that is in the best interest of you and your family. You can also refer to the life policy owners section of the LISA website for more information.
About the Author
Jon B. Mendelsohn is CEO and Co-‐founder of the Ashar Group, Inc a nationally licensed life settlement brokerage firm dedicated to representing the seller and their advisory team in appraising and securing fair market value for their life insurance. Jon is recognized in the industry as a thought leader and tireless champion for transparency and life settlement best practices. Jon is a sought after speaker on the national stage and a valued consultant to professionals working with sophisticated clients in the planning process. Jon graduated from the University of Florida with two bachelor degrees and a master’s degree. Jon is a proud supporter of the company cause, The Crohn’ and Colitis Foundation of America. He and his family reside in Orlando, Florida.