Talking About Life Policy Value Could Prevent Panic Stock Sales

Commentary February 08, 2018 at 03:46 AM
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It's likely that some of your clients were lulled into a false sense of security with the seemingly endless string of "green" days on Wall Street over the past few years. If so, they were shocked back into reality in the month of February.

After a significant downturn on Feb. 2, the global stock markets were routed on Feb. 5, with the Dow Jones Industrial Average posting the largest-ever point decline for one day in its history. While the percentage drop in the index was not nearly as devastating in historical terms, the 1,175-point drop — which at one point touched a nearly 1,600 point intraday decline — was a stunner for American investors. The breathtaking change in sentiment was made even more star-tling because it came just six trading sessions after all of the major stock indices surged to all-time highs.

This latest illustration of turbulence in the stock market is not news to financial advisors who are all too aware that their clients' retirement plans are subject to gyrations and sell-offs, but it may be a sobering shock to your clients already in retirement. Many seniors now living on fixed in-comes from Social Security, pensions or other investments may turn on the news and be tempted to panic in the face of this market volatility. They can be forgiven for feelings of anxiety as they begin to worry about the true underlying value of their investments.

The problem, of course, is that when stock markets undergo inevitable corrections or even ex-tended downturns, many of these seniors may impulsively sell their investments at prices that are at deep discounts to reasonable valuations. These panic sell moves are especially harmful to sen-iors as they lock-in losses on those assets. And this is where their trusted financial advisor must enter the picture.

As you're counseling your senior clients to remain calm during these periods of stock market turmoil and avoid the self-inflicted wounds that come from bad investment decisions, you may want to offer them creative ideas at the same time for how to generate cash flow from assets oth-er than those volatile stock holdings. One common asset that many seniors own — but is immune to volatility in the markets — is a life insurance policy.

For clients over the age of 70 who own a life insurance policy of at least $100,000 in face value, that policy may be a safety net during volatile times. It may be the asset to give them some peace of mind that they have a resource that can be tapped when and if it's ever needed. It may also eliminate the strains of an added expense of annual premiums at a time when they're trying to reduce unnecessary cash outflows.

Those of us in the financial services profession know that bull markets don't last forever and that the stock market is always subject to unpredictable fluctuations from day to day, week to week. But for seniors who are relying on their hard-earned life savings to produce the income needed to pay their bills and enjoy retirement, it's not so easy to endure rapid corrections such as the one we experienced in February.

These clients need to not only be counseled away from panic selling, they need to know they have other options available to generate cash flow. An old-fashioned life insurance policy just might be one of them.


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