Ripped From the Headlines: Life Insurance Rate Hikes Send Seniors (and Advisors) to the Life Insurance Secondary Market

Ripped From the Headlines: Life Insurance Rate Hikes Send Seniors (and Advisors) to the Life Insurance Secondary Market

This isn’t some new Law and Order series, unfortunately. This is real life.


Over the past year, at least seven big life insurance companies have raised premiums on a range of Universal Life Insurance policies, many of them targeting increases on seniors. From this, the headlines have ensued:

Retirees Stung by Universal Life CostsThe Wall Street Journal (August 10, 2015)

Surprise: Your Life-Insurance Rates are Going UpThe Wall Street Journal (December 4, 2015)

Life Insurers Pass Pain of Low Rates on to ConsumersThe Wall Street Journal (March 20, 2016)

Rising Premiums for Universal Life Insurance Draw ScrutinyThe New York Times (May 20, 2016)

Why Some Life Insurance Premiums are SkyrocketingThe New York Times (August 13, 2016)

The news stories provide some compelling – heartbreaking, even – “ripped from the headlines” stories:

  • A retired social worker had been paying $700 a year for his Universal Life policy ever since the 1980s. Last year, he received notice that his premium had risen to $6,000 a year. Unable to pay the new rate, he canceled the policy and took a job to supplement his income—at 71 years old.
  • When a retired couple’s life insurance bill nearly doubled, they were forced to drop their policy, simply walking away from a policy on which they’d paid $55,000 in premiums over the past 25 years. The return on their investment: the $4,100 in cash that remained in the account.
  • A couple, ages 62 and 57, who are both still working, just saw a 40 percent rise in their premiums. They are now cutting back on spending and expecting to work longer to achieve their retirement goals. “You think you’re doing the right thing, and it goes up in smoke,” they said.
     

“It does not take much imagination to imagine that millions of UL policyholders will be adversely affected if insurers are free to raise rates,” according to James H. Hunt of the Consumer Federation of America, which has called on state regulators to investigate these questionable rate increases. One policyholder decried that insurers should “bite the bullet” because they have historically profited with other people’s money, arguing that carriers should “tighten their belt” rather than seek more revenue and returns from existing policyowners.

Can you, as an advisor, relate these stories to your client’s own experience? Are your clients faced with the lapse or surrender of their policies? And, more importantly, if it was any other asset and your client was considering terminating it, what would you do?

Seniors – and their Advisors – Have Better Options


A better option to being forced out a life insurance policy is to sell the policy. In all instances – as a matter of law – buyers have to pay more than the cash surrender value. But, in fact, seniors selling their policies generally receive 4 to 10 times more than the policy’s cash surrender value.

By selling the policy, the policyholder can receive the full and fair market value of the policy—often as much as $100,000 or more on a $500,000 policy—and use the return to help manage increasing expenses or reinvest it to generate future income. Even if some level of coverage is still desired, the policyholder can opt for a Retained Benefit Settlement that allows a portion of the benefits to be retained—without having to pay additional premiums. (For more on Retained Benefit Settlements, see Here comes the sun: When Retained Benefit Settlements save the day.)

Sound too good to be true? Any client facing a multi-thousand dollar insurance rate hike may think so. But life settlements are very real, very valuable, and very safe.

Further, as I’ve discussed previously, life settlements are one of the most highly regulated financial services transactions in the US today. And, for the past four years, the only consumer complaints stemming from these transactions have been filed against insurance carriers who have attempted to stop the settlements from taking place. (For more on what makes Life Settlements one of the most secure senior financial services available today, see Myth Busters: Top 3 Reasons to Recommend Life Settlements.)

The secondary life insurance market can help you generate good news.


Imagine these headlines: “My financial advisor helped me achieve my retirement dreams.” Or, “Advisor saves a client’s policy from the insurance company’s trash pile: Delivers triple digit returns on the sale of a life policy.” Equally as powerful, you may receive a heartfelt “thank you” from your client.

Michael Freedman
Investing in Life
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Michael Freedman is President of GWG Life, a leading purchaser of life insurance policies in the secondary market. For more than ten years, he has been the life settlement ind ... Click for full bio

Most Read IRIS Articles of the Week: April 17-21

Most Read IRIS Articles of the Week: April 17-21

Here’s a look at the Top 11 Most Viewed Articles of the Week on IRIS.xyz, April 17-21, 2017 


Click the headline to read the full article.  Enjoy!


1. Market Keeping You up at Night? Look for the Right Hedge


Like so many others in the industry, I was wrong. For years, I was certain that the bull market was nearing its end. I thought the market was over-extended, and that, surely, the wild equities run was coming to an end. But everyone else was bullish, and perhaps rightfully so. And while I’ve watched equities continue on their spectacular rise, I do think now is the time (really!) to put a hedge in place. Here’s why. Here’s how. — Adam Patti

2. How to Manage Bond Market Pain and Seek the Gain When Rates Are Rising


The realities for fixed income investors have changed. How is this being reflected in markets? Bond investing has become increasingly difficult over the past decade. Markets have been heavily distorted by ultra-low interest rates and quantitative easing, as well as by extreme risk aversion in response to the global economic crisis and the eurozone debt crisis. — Nick Gartside

3. Seven Reasons You'll Fail as a Financial Advisor


Is being a financial advisor worth it? I am an optimistic person and I encourage other people to keep a positive mental attitude (shout-out to Napoleon Hill and W. Clement Stone). However, by taking a good, hard look at the negatives in life, we can successfully pivot towards the positive aspects that will help us achieve our goals. — James Pollard

4. The Secret to Turning Every Prospect into a Client


How do you treat one of your most valued, existing clients? Here’s a list of some things that come to mind. — Andrew Sobel

5. Why Do Clients Change Advisors?


According to many advisors I speak with, the only clients that leave are those who have died. And while attrition may not be a big problem in this industry, I have to assume that at least a few clients change advisors without doing so via the funeral home. — Julie Littlechild

6. Why You Should Focus on Getting Referral Sources


I was talking with an advisor last week about how to get into conversations about what he does. He was relaying the story of going jogging with a friend who could be a good client but is, more importantly, connected to a large network of people who fit this advisors ideal client description. — Stephen Wershing

7. How Big Picture Thinkers Seize More Opportunities in 7 Steps


Big picture thinkers are not unicorns - rare and mystical. And they were not born with the innate ability to think big. They do, however, pay attention to the broader landscape and take the time to think, analyze and evaluate. — Jill Houtman and Danny Domenighini

8. 5 Actions to Build Your Reputation


Your reputation is who you are and how you show up, Monday to Monday®.  Many of us take our image and reputation for granted.  Give careful thought to the kind of reputation that you would be proud of Monday to Monday® and that would resonate with your purpose and priorities. — Stacey Hanke

9. How Are You Poised to Begin Welcoming GenZ to Your Workplace?


The generational changing of the guard is a fact of life as old as time. Young replaces old in responsibility, importance, control and culture. Outside of the family, the workplace is perhaps where this is seen most regularly by most people. — Shirley Engelmeier

10. Are Price Objections REALLY Price Objections?


Next time you hear your prospects give you price objections, it’s not because of the price. The give price objections because they don’t know the full value proposition that they’d be paying for. And it’s not based on their need, or your features and functions. It’s based on the buying criteria they want to meet internally. — Sofia Carter

11. Understanding the Economic Value of Transition Deals


Last week we wrote about the economic rationale behind going independent vs. moving to another major firm as an employee. As a follow-up topic, we thought it prudent to analyze transition packages attached to big firm moves and peel back the layers of the onion to show the components of these deals. — Louis Diamond

Douglas Heikkinen
Perspective
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IRIS Founder and Producer of Perspective—a personal look at the industry, and notables who share what they’ve learned, regretted, won, lost and what continues to ... Click for full bio