The average size of a policy sold in the life insurance secondary market is getting smaller. That’s good news for the many seniors who no longer need, want, or can afford their life insurance policies.
The trend suggests awareness and confidence in the industry are growing. In a recent podcast by Real Assets Adviser, GWG President Michael Freedman and GWG CFO Bill Acheson discuss some of the key challenges in the life insurance secondary market and highlight the many opportunities available for seniors and their financial advisors.
Acheson said that over the last year, the average size of an individual policy considered for purchase by GWG has decreased from around $3 million to under $1 million. The trend is reflected across the market, as reported by The Deal in its 2015 survey of the top purchasers of life insurance policies and the overall level of industry transactions.
“We view this decrease in average policy size as a very positive sign that awareness is starting to be created for the industry, as well as a sign of long-term growth,” Acheson said. “These transactions are well-suited [for consumers] to work through an intermediary [like a financial professional].”
Good regulation and good value make consumers happy
The industry has recently engaged in more direct-to-policyholder marketing. Financial professionals, too, can play an important role in informing senior policyholders that they can re-purpose their unneeded life insurance as a powerful wealth management tool. Further, the transaction process is highly regulated by the states, and this transparency has improved market confidence.
“Good regulation produces good value and happy consumers,” Freedman said. “As the market has matured in its experience to deliver value to seniors and a regulatory environment, there is greater comfort among financial advisors and insurance agents to suggest exploring the value of selling a policy to their clients.”
Still, national studies show that more than $600 billion in face value of life insurance policy benefits are lapsed or surrendered each year. Of that total, $180 billion are held by an addressable market of policyholders aged 65 years or older, which would qualify for sale in the secondary market. But while challenges persist, opportunity abounds.
“[TheDeal.com] estimated that $1.65 billion, or less than 1 percent of the market potential, was purchased in 2015,” Freedman said. “It really shows that there’s not a lot of awareness but a huge market potential.”
Insurance investment offers potential for yield, non-correlated financial strength
An investment in life insurance has several unique features – including potential for yield and non-correlated financial strength that isn’t tied to traditional investment markets. And it’s an opportunity with longevity, since the number of Baby Boomers in the U.S. who retire each year supports sustained growth in the market for the next 20 to 30 years.
“There’s something for everyone in this market,” said Acheson. “The consumer value proposition is unmatched, in a regulatory environment that benefits them. There’s something in it for investors in life insurance, too, as a non-correlated, high-yield, growth opportunity.” He continued, “We’ve paid seniors on the order of $300 million greater than the combined cash surrender value. This is a good, safe transaction for the consumer and a compelling investment opportunity that is putting money back in the hands of seniors.”
Listen to the full podcast.