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Using a Life Settlement Along With a SPIA to Provide Lifetime Income
By Steve Shorrock, ChFC, CLTC, FLMI
I have written in past columns of the
many uses of a life settlement, which
is the sale of unwanted, un needed
or underperforming life insurance
policies. The need for life insurance
changes as in sureds mature. Life settlements
are an extension of the life insurance
industry and offer a potential option
for insureds going through these changes.
One opportunity we have not discussed
is the ability for an insured
to turn a life insurance policy into a
stream of lifetime income. Due to the
increase in life expectancy, a concern
of many seniors is outliving their assets
and being a financial burden on their
children. Whereas retirement assets may
have thought to have been sufficient,
now because of lower interest rates, unstable
equity markets and the possible
health change of a spouse, this nest egg
may no longer be sufficient.
With a life settlement, there is opportunity
for the owner to sell a life insurance
policy for proceeds often much
greater than the Cash Surrender Value.
Since 2007, our clients have received
more than $20 million in excess of the
policies’ Cash Surrender Value. Instead
of investing these net proceeds into vehicles
that are either at historically low
interest rates or in an unstable stock market,
a SPIA (Single Premium Immediate
Annuity) can be purchased that provides
for lifetime income. As the life insurance
policy was needed for income replacement
or to protect against early death,
now that same life insurance policy can
fund lifetime income on a very efficient
tax basis.
The chart below shows a real life example
of the SPIA opportunity: A female
client, age 82, with a life expectancy of
106 months, sold her $1 million Universal
Life policy and received $250,000 of proceeds.
Her financial representative suggested
she purchase a SPIA, which would
provide $2,380 of income each month for
a minimum of 106 months and continue
to pay for lifetime if she lives past life expectancy.
Of this monthly income, 75% is
tax-free as it is a return of basis or principal.
A nice win for her!
Advisors who do not offer life settlements
to their senior clients are not
properly representing them. Clearly,
you have the fiduciary responsibility to
discuss life settlements within your clients’
financial plan.
FA
Steve Shorrock is President of LifeVentures
Corp, which designs new life insurance
products and develops marketing concepts
for agents, and Co-Managing Director
of Select Life Settlement Corporation,
a life settlement firm that brokers seniors’
unwanted or unneeded life insurance
policies. You can reach him at his Northport,
Long Island office at 631-239-6655 or
steve@lifeventurescorp.com
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