How to Use Life Insurance to Generate Income
Savvy seniors have discovered how to unlock substantial cash value from the life insurance policies they own. With help from professional advisors they are reselling their life insurance policies to institutional investors in Life Settlements for large cash payments.
Traditionally, Life Insurance has always been viewed as an expense. Granted, it is a critical tool to protect wealth and ensure that it is passed on to heirs and beneficiaries, yet the policy owner receives no direct benefit. For the owner, it is a large cash expense. But over the last few years a large secondary market for life insurance has developed- the life settlement market.
The investors who buy these policies do so because they will make a large profit. If the policy is profitable for investors, it will be even more profitable for the family of the insured.
Just because you can sell a Life Insurance policy does not mean it is a good choice to do so. However, when it makes sound financial sense a Life settlement is an excellent strategy to generate cash and potentially ongoing income.
- Seniors can increase cash flow with lower premium life insurance. Often, seniors are able to purchase replacement life insurance that has lower premiums or higher benefits with comparable premiums. Otherwise seniors may sell a larger older policy and replace it with a smaller policy with much lower annual premiums. This can be a win-win situation; they get an improved level of life insurance for lower premiums that can be funded with the proceeds from the life settlement.
- Banks and other lenders will often lend the money to finance premiums, thereby giving seniors the ability to buy life insurance without affecting their cash flow. Using “OPM” Other People’s Money to buy insurance is an ideal technique for certain savvy seniors. Doing so allows them to do much better in other investments rather than tying up large amounts of capital in insurance premiums. The background of the secondary market for life insurance creates valuation standards so lenders will often make very attractive loans against policies that have secondary market value.
- Seniors can develop a portfolio of Life Insurance policies and have their Life settlement value regularly appraised. One or more policies can be sold from time to time in a Life insurance settlement when and if cash is needed.
Seniors who work with an experienced life settlement and/or life insurance professional can leverage their life insurance and insurability in a number of creative ways. The fact is that for a senior over the age of 70, life insurance is no longer just an expense they incur to protect their estate for their heirs. Now it is a semi-liquid asset that has value on a freely traded life settlement market. In many cases the best decision is to keep the policy but in the event that situations calls for it, the ability to resell a life policy for a substantial profit is truly an ideal position to be in.
About the author:
David Mickelson, ChFC, AEP is an expert in wealth strategies for seniors. He has helped hundreds of seniors with life insurance, life settlements and all aspects of estate planning.