Many advisors think of life settlement prospects as seniors, aged 70 and older. However, the target market is really much broader than just seniors. Increasingly, we see policies brought to market through the involvement of the insured's children, who tend to become active in their elder parent's financial decision making. Since these children are typically 45 to 60 years old, they are usually at a proactive stage in their own financial planning and likely current clients.
Children tend to become involved in parental financial decisions in times of distress. Families with a high proportion of illiquid assets, such as real estate, commonly run into cash flow problems. Distress can be brought on by underperforming financial plans or related to changes in health. Family businesses, particularly when changing management to the next generation, reevaluate their financial position and make adjustments.
Here are three examples of parents and children working together to resolve challenges:
1. Illiquid assets
The insured had successfully battled breast cancer, but the breast cancer had returned. Treatment was aggressive and once out of the hospital, the insured required assistance with daily living. Savings had become exhausted — the insured's daughter helped where she could, but was juggling a fledgling business and small children. Together, they elected to sell a $500,000 insurance policy to fund home care services. The following summer, the insured enjoyed an 80th birthday bash, complete with a band, on the family farm — made possible, according to the daughter, with the life settlement proceeds.
2. Children paying premiums
The matriarch of the family had been experiencing financial problems for some time. For several years, the three children of the insured had been paying premiums on a $6 million policy insuring their 90-year-old mother. The premiums had become too much of a burden, and the family considered either selling the insurance policy or the family home, valued at approximately $4 million. They elected to downsize the house and consider selling the policy in exchange for a continued interest of $2 million in death benefits in an irrevocable beneficiary transaction.
3. Generational business succession
