Retirement planning in the US typically involves discussions around investments such as stocks and bonds, and, for the more affluent, offerings such as hedge funds, private equity, and real estate.
But for many Americans, their life insurance policy is their second largest asset, after their home. And many of these life insurance policies meet the criteria for sale in the life settlement market.
So, why aren’t more American seniors taking advantage of this option as part of a more holistic retirement planning solution? Greg Winterton spoke to Rob Haynie, Managing Director at Life Insurance Settlements, Bryan Nicholson, Executive Director at LISA and Chris Orestis, President of Retirement Genius, to get their thoughts on why – and what can be done to improve the current situation.
GW: Most people in the life settlement market would say that awareness is the number one factor as to why life settlements aren’t more well known, so let’s start with direct awareness. Is the life settlement industry actually helping itself here? Is it doing enough?
BN: I would say that the state of the landscape now is very different – in a good way – to what it was just five years ago. There is much more information on TV and online now, with more companies being involved in these efforts. So, the individual firms in our space are doing more purely on their own. And then we have organisations like LISA and ELSA supplementing these efforts, and filling gaps where awareness efforts are better served by groups like ours, and we’re more strategic in terms of intersecting planning and communications. I’m not sure that you can say that it’s good or not, but it’s definitely better.
RH: Every day I struggle with it this. What else could we be doing? Our industry is like a lake with one fisherman and one pole – we’re the only one’s fishing in it. We have a lot of work left to be done. But the awareness generally is definitely different to what it was just five years ago and certainly ten years ago. Back then, we would have talked about life expectancies as having a maximum of 10 years. Now, that’s in the middle. We’re seeing 200 month LEs. As the market grows, you’ll see more and more newer participants come in. I think our space is still in its infancy.
CO: First of all, I don’t think that the life settlement industry is alone in terms of it not being a fixture in a retirement planning solution. It’s the same with reverse mortgages and annuities – this knowledge gap is pervasive across many financial solutions that help seniors.
But I do agree with Rob. As the life settlement market grows and benefits from increasing awareness and mainstream awareness, that in turn should mean the opening of other doors to places where awareness can again increase, which means that you’ll see new sources of policies as opposed to the current situation of a few hunters all trying to hunt for the same deer all the time.
GW: What about media advertising? Given that the primary market is a consumer market, is it necessary for the industry to advertise in order to stay in the public consciousness?
CO: I don’t think that it’s required, but it is certainly a benefit that is accruing to the market overall. But there are a number of ways to create that awareness – you have paid media but also social media. And then there is earned media too. There are a number of ways to educate the consumer and the intermediaries about the benefits of the space.
RH: I’m not sure it’s necessary but it works. Although the audience is sceptical – seniors are targeted for scams, so it is equally important to be there for a long time to build a good reputation. But I think we’re going to see different types of advertising it as we move into other realms of social. You think about Tik Tok – I can see more ads going there because it’s equally important to reach sons and daughters as well as seniors.
BN: From LISA’s perspective, there are other channels we are looking at as well as what you think the traditional or typical channels are. For example, we are looking at providing materials to and building dialogue with stakeholder groups focused on consumer advocacy and the long-term care industry. For us, we need to consider how we look to build out content for our members that highlights the aggregate impact of the industry and can be used to supplement the promotional efforts of our member firms.
GW: Bryan’s comment there segues nicely into indirect awareness. The wealth manager / registered investment adviser cohort would seem to be an obvious channel for the life settlement market to get more friendly with but it’s not that easy is it.
RH: It’s not, and it’s frustrating. We work with a number of broker dealers and one time we had a client calling us directly and he said his life insurance agent said he couldn’t talk about it. And it’s such an obvious win for our industry – wealth advisors can repurpose the money that their client gets for the settlement into their investment portfolio, for example. Add to that, the client so often ends up just surrendering the policy when they could get multiples of that on the life settlement market.
CO: For the non-life insurance licensed entities that are talking to seniors, they’re just not going to get a license. They can’t share in a brokered compensation – they see this as a one-off, unicorn event that is not worth their time and effort to be licensed to receive compensation. It’s a real roadblock that stops the life settlement market from getting into these areas. It’s difficult to find people out there that will do it out of the kindness of their heart.
BN: This is something that is on the list of things for us to target as an association and work towards. We’re always looking to further dialogue and increase participation from that community. I do think that we are better positioned now to have us be a value added and recognized component of that discussion. It comes back to what I said earlier about dialogue – and we’re planning to announce some activity in this space later this year.
GW: Are there any challenges in terms of alternative products available to American seniors? Reverse mortgages for example?
CO: I don’t think so. Actually, they work together well – you can do them both. What’s interesting here is that the two biggest assets owned by Americans are their homes and their life insurance policies. There are 260m in-force life insurance policies out there worth a total of $21trn of death benefit. That’s actually bigger than the housing market. It’s ironic that the two biggest asset classes have two of the lowest penetration rates of any options out there. It is shocking how few transactions are done by either of these two categories each year. But no, I don’t see the issue here being one of competing products.
GW: What else could help the market to gain more of a foothold in the consciousness of American seniors?
RH: The Senior Health Planning Account Act is picking up steam again. This is something we can all get behind [the act would allow seniors to sell their life insurance policies tax-free and use the proceeds to fund healthcare expenses]. It’s amazing that this isn’t happening already – the list of things that currently qualify for it is like the 1997 yellow pages in Manhattan.
BN: I agree – this could be significant for our market. You start with the member of the house who is the champion for the bill and then build advocates who don’t know this could be an option for solving the issue. We’re doing some work in this space as well – hopefully the stars align on this one.
GW: Lastly, for today – what’s the overriding message here? If you were pressed for one thing, what would it be?
CO: I think that the life settlement market needs to work outside its main sandbox, as I said earlier. When I’m at an industry conference, I talk about retirement generally but almost every time, life settlements-related content gets people’s attention. It is just a matter of getting out there and telling that story in a compelling way – talking about it as part of a toolbox for solving the financial needs of a population that is aging and declining in health.
RH: For me, it’s a case of keep on keepin’ on. We are up against certain headwinds as I said, and there are others we’ve not mentioned, such as people being constantly sold financial products. Some have way too much life insurance, and it’s not doing what it’s supposed to do, and they keep making payments, and they lapse it.
In retirement planning, there’s little that’s sexier than when you get an offer for your life insurance policy that is many multiples of the cash surrender value. We just need to illuminate the spread between what they would have gotten in a surrender and what they would get in a settlement. Just because you’re wealthy, and you’re working with an estate planner, doesn’t mean you’re going to be told about life settlements.
BN: For LISA, it’s a case of becoming more systematic and targeted in terms of the change we’re trying to make. A big part of it is the consistency of the effort towards it. That is what will make the difference for us in terms of having American Seniors think about life settlements being ‘on the menu’ in terms of their retirement planning, whereas now, being honest, it’s not. Of course, we need to do it in a way that makes the most sense to our members and the wider industry. But as I said earlier, the landscape now is different, and as an industry, we are making progress. We just have to keep pushing – change will not happen overnight for our industry.
Rob Haynie is Managing Director at Life Insurance Settlements
Bryan Nicholson is Executive Director at LISA
Chris Orestis is President of Retirement Genius
