Business Management Blog

It’s a mad, mad, mad, mad world on Wall Street these days, and unless you’ve been buried under a veritable avalanche of rock for the last several months, you’re undoubtedly painfully aware of just how much damage has been wrought in the equity markets.

To put that damage into perspective, let’s look at a few vital statistics. Over the 12-month period from October 10, 2007 to October 10, 2008, the S&P 500 index plunged 43%. Foreign markets, as measured by the EAFE Index, sank 48%. Investment interest rates on the 10-year Treasury note dropped from 4.65% to 3.86%. Real estate/housing prices were down 9% nationwide and 11% in Arizona. Oil prices surged 25%, while blue chip stalwarts like Ford and General Motors shares plummeted 76%, and 87%, respectively.

Widespread consolidation and outright bankruptcies amongst big financial firms like Countrywide, Bear Stearns, Merrill Lynch, and Lehman Brothers have effectively remapped the entire banking landscape. And of course, we have yet to begin assessing the aftereffects of the federal government’s trillion-dollar bailout package. Understandably, many investors are now wondering what to do and how they can stay ahead amidst this market descent.

So, what’s a savvy investor to do?

One strategy you can employ to help weather this market storm is to “maximize” your life insurance policy. It’s estimated that approximately 73 million Americans currently have life insurance policies, yet I doubt many people know just how powerful a weapon your policy can be in the battle for maximum wealth appreciation. Let me outline a couple of examples of how you can use life insurance to help protect and growth your wealth.

If you’re like me, I suspect that you have a low-cost term life insurance policy sitting in your desk drawer. In most cases, those term policies expire without paying a benefit. When the term is up, we simply allow our policies to cancel. After all, what other option do we have?

Fortunately, that term policy doesn’t have to be a dead asset. In fact, did you know that you have the option of selling an expiring term policy for cash? That’s right; there are firms out there that will buy your term policy from you.

You see, in recent years there’s been a burgeoning secondary market for life insurance policies, where Wall Street institutions such as Goldman Sachs, Credit Suisse, Berkshire Hathaway and others actually pay policy holders cash to purchase their life insurance policies. These institutions offer cash settlements in exchange for your in-force life insurance policy.

For example, I recently had a situation where a 74-year-old client had a $3 million convertible term policy he had as a key-man policy from the business he retired from. The existing term policy was set to expire in less than a year.

He sold that policy to a very credible and prominent Wall Street institution for $400,000. The math on how the value of a policy is determined varies from case to case, but what is important for you to know is that because of this new secondary market for life insurance, you may also be able to turn an expiring asset into real money.

Want another example? I recently worked with an 80-year-old client who had a net worth of over $4.5 million. He had a $1M universal life policy that he took out a few years before in order to address his growing estate protection needs. Years later, due to some creative alternative estate planning methods, he no longer needed the policy as protection as originally planned—and of course, he preferred not to have to continue paying those insurance premiums.

Historically his options were to either let the policy run until expired or surrender it back to the insurance company. In this case, the cash surrender value was just under $28,000. Thankfully, this client heard us on the radio and called to inquire about a life settlement opportunity. We were able to secure an offer on his policy for $330,000.

You see, because of the tremendous growth of the secondary insurance market in recent years, insurance policies no longer have to be looked at as expiring and/or as an intangible liability.

Many savvy investors now realize the true value of their life insurance policies, and in many cases that value is literally locked up in their home safe. Because of the secondary market for insurance—and with the right assistance from an experienced advisor—you too can turn your policy into virtual gold.

The fact is that these days, life insurance is an asset class. And given the current decline in traditional asset classes like stocks and bonds, now could be the best time ever to realize the power and flexibility that owning life insurance as an asset offers.

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