Life Settlements as a Hedge Against Inflation
For agents and advisors who are under 50, the term “inflation” does not have a huge meaning beyond the textbook definition. Most folks from Generation X and younger did not experience the specter of inflation that haunted the 1970s – but their clients did. Many baby boomers, who are prime life settlement candidates, were coming of financial age in the ‘70s when prices and interest rates were out of control. High gas prices and mortgage interest rates get most of the historical attention but rising costs for many commodities were also very troublesome. Today’s seniors remember those inflationary times, and it’s absolutely a concern for anyone working to protect their retirement nest egg. Recent news proves that inflation is on the minds of many as the Wall Street Journal recently reported that U.S. consumer prices rose 5.4% in June from a year earlier, keeping inflation at the highest annual rate in 13 years.
For inflation-wary clients who have life insurance, a policy appraisal is a good recommendation. They need to understand that they have an option if they have a life insurance policy because life insurance settlements pay cash for clients who need to supplement their income – and a life settlement is not correlated to the financial markets.
Rising prices and costs of living are the great fear of anyone in retirement or who is planning for retirement. And we are already seeing evidence of rising costs. According to the Bureau of Labor Statistics, gasoline prices are up 56% while fuel oil is up 50%. Used cars and trucks are up 30%, and airfares are up 24%. This list goes on as car insurance is up 16% and natural gas is up 13%. Medical services, electricity, and many other costs also have risen, maybe only a few percentage points but risen, nonetheless. And we are seeing it in the grocery store, though not as dramatic. (Except for chicken wings. For some reason, chicken wing prices are through the roof. Time to become a leg man.)
For clients who have old term or whole-life policies, they need to understand what a policy might be worth if they need to sell it to offset rising costs. The life settlement market is not aligned with the stock market either, so it provides an interesting “hedge” again all manners of downturns. Policies that were nearly forgotten could become a financial lifesaver for those clipped by rising costs. Any client who is worried about inflation or how they will afford things in the long term needs to have their life insurance policies appraised.
Today, advisors and agents should assume their clients are worried about inflation, and it’s not something that you can just brush off. One can’t say “we will never have inflation like the ‘70s again,” after we just spent the past 18 months fighting a global pandemic that no one saw coming. While time will tell if inflation becomes a problem for seniors, the current fear is real, and a life settlement may be the answer for your clients. It starts with a life insurance policy appraisal.