March 16, 2020 at 12:22 PM
(Related: When Clients Want to Sell Life Policies, Seek Multiple Offers)
As financial markets around the globe react to the spread of the coronavirus, many retirees worry about the impact on their investment portfolios. Seniors who are about to begin their retirement drawdown strategies are wondering how the market’s plunge will change things.
Most financial planners and advisors are recommending that their clients remain calm and stay the course, assuming they have the proper asset allocation along with enough cash in their emergency fund to pay for two years of basic living expenses. A well-funded emergency cash account can provide seniors with peace of mind during times of economic crisis or pandemics such as the coronavirus. They know they won’t be forced to sell off investments at a loss in order to pay their basic living expenses.
Of course, a key aspect of this advice strategy is making sure investors have a sufficient balance in their emergency cash account that will carry them through several years of market turbulence until stocks recover. Unfortunately, many seniors do not.
That’s why some retirees who want to shore up their cash savings and emergency fund accounts are taking a new look at the secondary market for life insurance.
Selling an Unwanted Policy Can be a Smart Move for Many Seniors
Selling an unwanted life insurance policy for approximately three times its cash surrender value is a smart move that makes sense for many seniors ─ especially for those who are hesitant to make withdrawals from their retirement portfolio in a down-market.
For seniors over the age of 65 who qualify, a life settlement can generate immediate cash that can be used to boost their emergency cash fund or help them avoid dipping too deeply into their invested accounts when portfolio values are down.
For more than 20 years, the secondary market for life insurance has been an option for policy sellers seeking to optimize the cash value of unwanted life insurance policies. Over the past five years, the market has seen resurgence as more institutional capital enters the market.
Since its inception, the market’s growth and staying power can be attributed to a number of factors, including a more robust regulatory environment that protects the best interests of policy sellers (consumers), and the infusion of investment capital from major financial institutions who are attracted to its non-correlated asset class. Institutional investors often allocate a certain percentage of their investment portfolio in non-correlated asset classes, such as life settlements, in order to insulate a portion of their investment funds from the extreme volatility of the financial stock market.
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