7 Ways the Law Protects Seniors Who Sell Their Life Insurance Policies
I never get tired of sharing this fact: a life insurance policy is an asset. If a senior is not going to keep their life insurance policy—for whatever reason—they have a protected property right to sell that policy. In many cases, they’ll receive significantly more than if they simply lapsed or surrendered their policy back to the issuing insurance company. Just like a house or a car, life insurance policies can be a hidden treasure that can result in the senior receiving as much as 10 times more than the policy’s cash surrender value. Many seniors use the proceeds they got from the sale of a policy to fund retirement or pay for long-term care needs.
Yet many seniors don’t take advantage of this opportunity. Why? Because they don’t know it exists or, too often, the financial professionals who advise them—CPAs, wealth managers, estate attorneys, etc.—don’t know about it, either. Secondly, even when they are aware, they don’t understand it.
As such, I’ve dedicated much of my career to promoting the life insurance secondary market and dispelling the myths surrounding this valuable asset class. Over the past 15 years, I’ve worked diligently to create a market that makes selling a life insurance policy one of the safest and secure financial services available to seniors today. Over the past decade, the life insurance secondary market – also known as life settlements – has promoted an unprecedented nationwide set of laws and regulations that protect seniors who sell their policies.
Read on, because these standards matter—perhaps more than anything—when it comes to creating financial options for seniors.
It’s generally accepted that seniors are particularly vulnerable to misguided financial advice. Every advisor I know has a horror story to share about a client who was scammed or swindled out of a significant portion of his or her hard-earned assets. In fact, The Stanford Center on Longevity and the Financial Industry Regulatory Authority's Investor Education Foundation recently reported that seniors over 65 are 34% more likely to lose money on a financial scam than people in their 40s. The good news is that the situation isn’t going unnoticed. Private organizations such as AARP and The Investor Protection Trust, as well as federal and state government entities including the Consumer Financial Protection Bureau, are aggressively working to protect seniors and their nest eggs.
In addition, the Life Insurance Settlement Association (LISA) has led the way in introducing and implementing consumer protections designed to inform and protect seniors so they can easily and safely access the market value for an unwanted, unneeded or unaffordable life insurance policy.
From educating sellers to informing beneficiaries to ensuring policies are being sold to the best possible advantage of the policyholder, the following Top 7 standards provide confidence to seniors and financial professionals that exploring the sale of a policy can be the right choice.
Selling a policy is a highly transparent transaction.
Prior to the sale of a policy, the seller receives numerous consumer disclosures. In most states, this includes all offers, the gross vs. net amount of the offer, sales commissions, comparisons of sale price versus the policy surrender value and accelerated death benefit amount, names of purchasers, and more. They say sunlight is the best antiseptic.
When considering selling a policy, sellers are advised of alternatives to selling it.
Imagine this: you’re trading in your old car at a dealership, and the dealer tells you about all the ways to NOT sell your vehicle. Licensed buyers of life insurance policies are required (in the majority of states) to do essentially that for someone selling their policy: Life settlement companies are required to provide sellers with information about keeping their policies in force, including disclosing that an accelerated death benefit or policy loan might be a better option. In addition, in most states, settlement offers disclose the settlement amount as compared to any accelerated death benefit that might be available under the policy. It’s definitely a seller’s market.
Sellers also receive disclosures of certain risks when selling a policy.
While in most cases the financial benefits of selling a policy far outweigh surrendering it back to the insurance company, there are certain risks that must be disclosed, including tax consequences, a reduction in government benefits due to increased assets (usually a good problem to have!), or creditor debt reducing the net value of the transaction. As a financial professional, your guidance will be needed to assess each risk.
NBA Player Carl Landry Demonstrates the Value of Persistence in Life and Work
Written by: Jon Sabes
When you meet Carl Landry, stand-out college basketball player and nine-year NBA player, you imagine that becoming a professional basketball star was a straight forward run for the 6-foot-nine-inch power forward.
However, when you go deeper into Carl’s background, becoming a NBA professional was less than certain and little came easily to the 33-year-old from Milwaukee:
- He was cut from his high school team as a freshman and averaged less than ten points a game when he did play as a senior.
- He started his college career not at Purdue, but a junior college where it was not clear he would play.
- When he finally got to Purdue, he tore his ACL in his knee his first year and reinjured it the next year.
- While his family held a party for him the night of the NBA draft, he slept in the Philadelphia airport after missing a flight following a workout for the 76ers.
- In the NBA playoffs, Carl had a tooth knocked out, but came back in the same game to make a game-winning blocked shot as the Rockets beat the Utah Jazz 94-92.
Landry, who I interviewed on my podcast, Innovating Life with Jon Sabes (www.jonsabes.com), is a remarkable example of the value of “persistence.” In a time where technology creates the image that anything is possible at the touch of a button, persistence is an under-appreciated trait. When I spoke with Carl, I clearly saw someone for whom success has only come through a force of will that made him a NBA player, but it also made him a better player every year he played. That’s the kind of personality that has produced greatness in business as well as sports.
Carl was, in fact, drafted that night he spent in the airport. The Seattle Supersonics chose him as the 31st overall pick and then traded him to the Houston Rockets where he rode the bench for much of the first half of the season. When All-Star teammate Yao Ming was injured, he stepped in and played a key role in the Rockets astonishing 22-game winning streak (the third longest streak in NBA history). And, that season, after sitting on the bench for 33 of the first 36 games, he was named to the All-Rookie second team.
Carl was the first in his family to go to college. “I told myself that this was my ticket out, so I did everything I possibly could to be the best person in school and also on the court,” he said.
His family life in Milwaukee showed him what he didn’t want to do. “Just being honest with you, seeing some my cousins, peers, they went to work for jobs paying six, seven dollars an hour or they didn’t go to work at all and then living off welfare. I didn’t want that.”
When he was first injured, he had to contemplate the end of a career before it even got started. “When you have an ACL tear, it’s over…no more basketball,” he told me. “I said, God, give me health again and I’ll do everything I can to leave it all out on the line and be a successful individual.”
On my podcast, Carl pointed out another interesting lesson he learned in the NBA: Not doing things just to fit in.
“Fitting in was easy,” he said. “Doing everything that everybody else does was easy. If I stood out in some type of way, I’m going to have different results. I’m going to have stand-out results.”
That’s called the “Law of Contrast” and it produces that exact effect of changing the outcomes that everyone else is experiencing. Carl is smart, he recognized that differences make a difference, and doing whatever it takes is what is required to make real, meaningful differences.
Every off-season for the last 11 years, he has run a camp for kids in Milwaukee where he tells youth his story of hard work and persistence. “I always tell the kids to apply themselves and always be persistent,” he said. “If you dream, apply yourself and be persistent. With hard work, man, the sky’s the limit.”
When Carl says the sky’s the limit he means it. He is smart to recognize that it’s important to dream big, because if we don’t – we may be selling ourselves short. “You have to dream bigger than your mind could ever imagine,” he said. “I wanted a nice house. I wanted a nice car. I said, and I got all of that. So, what do I do, do I stop now? Maybe I didn’t dream big enough.” That’s a big statement coming from a kid who grew up to be the first in his family to graduate college and go on to be not only a top NBA basketball start, but a good businessman, father and someone who gives back to the community.
I’m convinced that in whatever he takes on as a basketball player or in his post-hoops career, Carl Landry is not going to stop getting better at whatever he does, and in the process of doing so, make the world a better place.
- 1 of 1625