Life insurance policies have long been popular among older generations - far more so than the younger adults today - and for this reason coverage providers have long relied upon these groups to keep their bottom lines in the best shape possible. However, it seems that billions of dollars worth of policies in seniors' names are lapsing each year, meaning that companies could be losing out on those revenues, and consumers might not have the kind of financial protection they've been counting on for years.
The most recent data from the life insurance industry suggests that, as in 2008 alone, about 1.1 million life insurance policies of all types - universal, variable, whole, and term life - controlled by Americans over the age of 65 were allowed to lapse, according to a report from Life Health Pro. In total, those plans had a face value of about $112 billion. More concerning for the industry, though, is that the numbers were only likely to continue growing, meaning that billions more were likely lost last year.
Other studies suggest that a lot of seniors allow their policies to lapse due to personal financial concerns, and a general lack of understanding of what they're allowed to do with their policies, the report said. One, for instance, found that more than half of senior citizens didn't know they could sell their policies, and of that number, 90 percent of those who saw their plans lapse would have gone for a life settlement if they had known they could do so.
More steps being taken?
Currently, only six states have passed laws that mandate life insurers must alert their clients to the possibilities of life settlements and other options if they are in danger of having their policies lapse, the report said. More are likely to consider such legal steps, but the general consensus among experts - even within the industry - is that more ought to be done to help older people specifically to understand the alternatives that might be available to them.
For these reasons, it might be wise for life insurers to consider reviewing their policies as they relate to life settlements and other things that older people can do in the face of having to allow their plans to lapse altogether. Working to forge better relationships and simultaneously avoid running afoul of regulators could go a long way down the road.