Author: Bethany Bradsher
Insurance Overload: When Seniors Find Themselves with Too Much Insurance
It’s an idea reinforced from the very advent of adulthood: it’s better to have too much insurance than too little. But in the case of retirees, over-insurance is a very real possibility, and it’s a problem that can keep seniors from having sufficient resources for the costs of their golden years, expenses like medical bills, long-term care and travel.
What does it mean to have too much life insurance? Sometimes middle-aged adults, unsure of their future needs and swayed by persuasive sales pitches, buy large policies, or several different policies, because of their fear of leaving their families with no means of support. Sometimes the amount of coverage makes sense at the time of purchase, but as the years go by circumstances change and that level of insurance is no longer needed.
Maybe your original beneficiaries no longer need the financial support they once needed in your younger years, or your family dynamics have changed. Many seniors find that they are paying prohibitive premiums, giving money they need for daily expenses to an insurance policy that isn’t actually serving them anymore. And when they are over-insured, they may come to the realization that while they still need some life insurance, they don’t need as much as they have been carrying. Even if beneficiaries might still need a payout when the policyholder dies, an overly large policy might give them more than they actually need.
Above all, seniors need to make sure that they haven’t invested in life insurance to the detriment of their own livelihoods. As one insurance blogger stated, “We all need to make provisions for our loved ones in the event of our death, but that should never be at the expense of providing for our lives. Statistically, you’re much more likely to live out your full life than to die prematurely. You will also need to provide for that!”
If you suspect you might be over-insured, schedule an appointment with a trusted financial advisor to evaluate all of your insurance holdings and their efficacy for your situation. If you have too much insurance, the next step is to investigate the possibility of a life settlement. For those who qualify, a settlement can turn a liability—excessive insurance—into a windfall of available cash for immediate retirement needs. Magna’s life settlement advisors are available to answer questions about life settlement criteria and the steps in the process.
The Impact of Rising COI on the Life Settlement Market
There was a time when the COI (cost of insurance) charge on a universal life insurance policy was virtually assured to stay stable. Those who purchased policies looked at historical trends and concluded that their premiums weren’t likely to go up because of an increase in COI, defined as the amount a policyholder pays to cover the value of the death benefit.
But the landscape has changed, and universal policy owners find themselves in a season of uncertainty about COI and, consequently, the potential roller coaster trend in their premiums. In a recent presentation at a Life Insurance Settlement Association conference, QuantRes consultant Matthew Sheridan spoke about the uptick in COI and presented a model predicting which types of policies are most likely to be hit by the increases in the coming years.
According to Sheridan, his predictive model suggests that older, underpriced policies are the most likely to be hit with COI increases. It’s a trend with several different repercussions for those who sell or buy insurance policies on the life settlement market, including:
More interest in life settlements from policyholders. When COIs rise and premiums go up accordingly, seniors who are already living on a limited budget are often more likely to look into a settlement as a way to unload those premiums and bring in extra income. A life settlement isn’t the right answer for everyone, but anyone with a burdensome policy should calculate their potential eligibility for a settlement.
A movement away from universal policies. Consumers and investors alike are concerned about the stability of universal life policies due to the unpredictability of the COI increase trend. This upturn has led to more careful examination of different types of policies in search of more stable cost structures. If universal policies become less popular, the providers might respond to market forces and make moves to stabilize COI.
Our Magna life settlement experts stand ready to answer policy owners’ questions about their rising premiums and the best options for turning a burdensome policy into a needed financial windfall. To find out if the sale of your policy might be right for you, schedule a call with a Magna specialist today.
Letting the Light In: The Value of Transparency for Life Insurance Policy Owners
It’s not entirely realistic to expect that consumers have a thorough understanding of every decision they make; for instance, a heart surgeon doesn’t need to explain every technical aspect of a procedure before a patient agrees to it. But when it comes to life insurance, transparency is a reasonable expectation.
With a host of different types of insurance covering varying payment options and coverage periods, life insurance has become increasingly confusing over the last few decades. But a recent study shows that most individuals who buy and sell life insurance believe it is their right to understand the product, its benefits and its limitations.
The 2017 Insurance Barometer Study, conducted annually by LIMRA and Life Happens, polled insurance consumers on the improvements they believed should be made to the life insurance process. Of those surveyed, 83 percent said that the most crucial factor in choosing life insurance was having a product that was “easy to understand.” The study also found that 70 percent of insurance customers would like insurance to be offered without a physical exam, and 67 percent are looking for more transparency regarding risk and price when they shop for life insurance.
Just as consumers are owed a transparent process when they are purchasing life insurance, they should also have all of the facts when an insurance policy is no longer serving their needs. A life settlement is often a favorable option for seniors looking for extra resources in exchange for a burdensome insurance policy. As the life settlement market grows, so does transparency around consumer options when it comes to surrendering their life insurance policy. Recent legislative efforts, such as the life settlement regulation statutes that have been passed in 43 states, seek to make sure consumers have all of the facts about the life settlement option when considering giving up their life insurance policy. Consumer disclosure is a key component of many of those life settlement laws.
Life insurance, both at the beginning and the end of the policy’s life cycle, can serve both Americans and their beneficiaries, but consumers are not well-served when providers seek to obfuscate or inadequately inform them about the risks, benefits and parameters of an insurance policy. Similarly, consumers should have access to full information about their options regarding the sale of a policy. Try Magna’s simple life settlement calculator to understand how much value your policy could have and learn more about selling your policy by exploring our FAQs.