Five Developments in the Life Settlement Industry

The financial services industry and the country overall, even with variants of the virus becoming more prevalent, are more optimistic than ever that a return to “normalcy” is obtainable in the short-term. To that end, the Welcome Funds team has identified five developments for financial advisors to monitor as we continue through 2022 that should contribute to an improved outlook for both the primary and secondary life insurance markets.

1. Increased Client Engagement

Vaccinations and booster shots have been readily available for quite some time.  State and governmental restrictions, for the most part, have been loosened.  Office staffs are slowly returning to work as opposed to operating remotely.  The result? More financial advisors will return to hosting face-to-face meetings with clients and prospective clients.  Zoom calls have and will continue to serve an important function.  But there is little doubt that increased in-person client engagement leads to more intimate conversations and helps individuals become more comfortable with reaching important financial planning decisions, such as decisions to either purchase or sell life insurance policies.

2. Regulatory Change in Permanent Life Insurance Products

The Wall Street Journal reported in early 2021 that “the big year-end spending package” passed in December 2020 “includes a little-noticed revision of the tax code that is likely to boost sales of life insurance, particularly for wealthy Americans.” The regulatory change lowers the minimum interest rate used to determine whether “permanent life insurance” products sold by insurance companies — which combine savings and death benefit components — are investment vehicles or life insurance policies. As a result, life insurance carriers can be more creative with their new products and drive sales of Whole Life and Universal Life insurance policies.

3. Potential Estate Tax Reform

The 2020 election resulted in the transfer of power from Republicans to Democrats in the White House and the Senate - the Democratic Party now controls the Presidency and both houses of Congress.  One possible legislative change that did not occur as many anticipated, was a rollback of the significant increase in the federal estate tax exemption that was part of the 2017 Tax Cuts and Jobs Act.  However, that could change with the tremendously important 2022 congressional elections coming up in November. If Congress were to scale back the estate size currently excluded from federal estate taxes ($11.7 million per individual), we would likely see increased demand for large-face life insurance policies as part of estate planning strategies for high net worth individuals. Such a development would be a tailwind for financial advisors and life insurance producers who serve the financial services industry.

4. Economic Growth Returns

The CBO released in May its latest economic forecast and it was positive. “The nonpartisan Congressional Budget Office estimated that real gross domestic product, or GDP, will grow 3.1% in 2022, driven by consumer spending and demand for services,” according to the report.  It is good news for U.S. employment and business investment and represents an exit from the pandemic-fueled global recession, even with supply chain issues and the war in Ukraine.  If past economic cycles are predictive, the result would be a healthy business environment for the life insurance industry; empirical research indicates that people tend to purchase more life insurance policies when their disposable income rises.

5. A Relief Rally for Financial Planning

Over the few years, a lot of clients have been overwhelmed, preoccupied with anxious questions, and focused on keeping their families safe and healthy. Many people simply put off making decisions about retirement planning.  As we return to “normalcy,” many individuals will likely revisit important financial planning issues that were avoided over the last 24+ months. There is an opportunity for financial advisors to facilitate these decisions.

Financial advisors play a key role in helping their clients identify sources of cash flow to fund and maximize their retirement income needs and achieve their personal financial goals. The life settlement option may be attractive for specific clients who no longer need or can afford their life insurance policies.

Each year, billions of dollars in face value of life insurance is lapsed by seniors over the age of 65, mostly from a lack of knowledge that an unwanted policy may be sold. There are numerous reasons to consider selling a life insurance policy — rather than allowing it to lapse or be surrendered — such as the premiums becoming too expensive, a sudden need for resources to pay for health expenses and long-term care, or simply a desire for funds to improve a retirement lifestyle.

Life settlement transactions are safe, ethical and well-regulated. The industry has experienced steady growth, which should continue over the next decade.  Therefore, if a senior life insurance policy owner no longer wants to keep his life insurance policy, then he should explore the life settlement option.

For more information, to become educated about the life settlement option, and/or to receive a free, no-obligation appraisal of a life insurance policy, please visit www.welcomefunds.com or call 877.227.4484.