Seniors searching for life insurance are often confounded by the array of products available. Whole life, Universal, Term? One thing is clear, however, and that is the obvious-sky high premiums.
Many seniors choose to get diluted coverage because of the premium expense, or forego life insurance completely instead of purchasing this asset, which might be extremely worthwhile for their families. The cost of providing for their loved ones is just too high to bear during retirement years.
Are there any alternatives? The answer is, unequivocally, YES! A specific new life insurance for seniors product has evolved over the past few years and it is called Premium Financing. It is not a new life insurance concept, but one that has come to the forefront recently.
Premium financing is where, typically, an independent institutional funder decides to pay the premium for the insured. Financing is done for a period of years, or even for life. Financing rates vary, but are typically related to the U.S. prime rate or LIBOR.
Why would the funder do this? The funder believes that they will get a better return, overall, than investing in traditional financial vehicles. They fund an enormous basket of these transactions, and know through the law of averages, that overall, their returns should yield a few hundred basis points higher than bonds. The institutional funders include Hedge Funds, Large U.S. and International Banks, Pension Funds, College Endowments, and even Insurance Companies themselves.
Why would a senior do this? The senior typically has no out of pocket expenses, or, at most, minimal cash outlay. Imagine getting millions of dollars of coverage with no cash outlay or a few thousand dollars one time total investment.
If the senior dies while the note is in force, premiums and reasonable interest are recouped by the institutional funder, and the balance is paid to the heirs. These new senior life insurance programs are set up so that the proceeds pass to the heirs both income tax free (standard with life insurance), and estate tax free. This is an awesome advantage, once only utilized by the very sophisticated and wealthy.
In some cases, depending upon the initial structure, seniors may even choose to offer the policy for sale into the burgeoning secondary market called life settlements at the end of the note term, continue financing, or even buy the policy outright if their health status has changed.
There are even revolutionary life insurance products, like immediate annuities, which can, in many cases, provide seniors an income for life with no out of pocket expense.
Today’s financial markets offer a plethora of options for Seniors to obtain the Life Insurance they may dearly need.