Is Your Life Insurance Policy in Danger of Lapsing Because of a Cash Flow Crunch?
The challenge is many of those older policyholders may find themselves unable to continue making premium payments. As a result, agents spend a significant portion of their time to conserve the policy- in essence, find a way to keep it from lapsing. “In addition to this, the underlying benefits in these legacy insurance policies that these agents were offering tended to have more benefits than similar policies that are issued today. In short, they are well worth keeping”, says the columnists James Burton and Darren Matte.
Having worked as an insurance agent many of these policies in danger of lapsing are likely cash-value contracts. Such policies build up an actual cash value and typically insure the policyholder until the age of 100. Whole life policies certainly cost more than term insurance therefore it’s not uncommon to see someone who has invested tens of thousands of premium dollars in the hope their family or estate will be paid upon their death. Letting the policy lapse for non-payment is a significant financial loss. In most instances, individuals only recoup a portion of premiums paid while the estate or heirs lose the death benefit.
Andrew Cairns, National Lead, Wealth Management at HomeEquity Bank, told Wealth Planner, “Essentially, what we can do is provide cash flow to keep the existing book of superior insurance products in force, as opposed to clients either cashing out or lapsing their policy. As much as we would like to see a 70-year-old qualify for a new insurance policy, they don’t qualify in quite the same way as they used to when they were in their 30s and 40s.” Not only that, retirees face a myriad of financial uncertainties including health care costs and long-term care. And how likely is a 70-year old to be approved and pass the rigorous medical underwrite process? Reading the column I began the appreciate the pragmatism of taking a portion of a home’s value that may have increased over half a million dollars in 20 years and using it not only to ensure that the original estate plan is met but that it is once again realistic.
In one hypothetical example, a single 65-year old male has a life insurance policy with a $400,000 death benefit he purchased 20 years ago. If he let the policy lapse his estate’s ultimate value would suffer significantly.
So what does HomeEquity Bank’s strategy have to do with us? After all, we cannot recommend nor sell life insurance. You would be correct. However, we can appreciate the incredible flexibility of a reverse mortgage, perhaps in ways we never considered before as a reverse professional. Do long-term insurance agents in your area find many of their older clients are letting policies lapse because of a cash flow crunch? They cannot use the loan proceeds to purchase insurance but they certainly could preserve their policy and estate legacy by improving their cash flow by eliminating mortgage installments and other debts. Perhaps an old dog can learn new tricks after all.
