Making Your Life Insurance Work for Your Retirement with Rob Haynie- Episode 515

Life insurance is designed to sell to what they call younger people because there's not a lot of issues with them. They're easier to underwrite, and you're going to pay premiums for a long time, so they're much more affordable when you're younger. As you get older, right, they become more expensive by design. So when you go to get life insurance as you're older, you'd pay more than when you're younger.

Welcome to Streams to Impact and be inspired to engage passionately in the work of your calling while achieving financial prosperity through multiple streams of high-yield returns on investment. to bring your dream of making a meaningful impact to reality. I'm your host, Dr. Allen, and I am delighted that you are joining us today. If you haven't yet, get a complimentary copy of our exclusive guide, High Yield Investment Blueprint: Secure 18%+ Returns in 60 Days. Go to our website, highyieldinvestmentblueprint.com. That is www.highyieldblueprint.com. Just provide your email address and we'll send you a copy today. Hello, enlightened investors, and welcome back to Streams to Impact. I'm so delighted that you are with us today. We are going to have a wonderful time exploring how we can make our life insurance work for our retirement, smart ways to turn policies into income. And it sounds like a wonderful thing, and I'm eager to learn about this. And with us is Rob Haney, and he is the world's number one life settlement expert, and he brings 31 years of unmatched experience helping seniors and families unlock hidden value in life insurance policies for better financial outcomes. So Rob, I'm sure your journey, like many of us, has been like that of Equus, and it has been one of transcending boundaries and inspiring others through your work. And as you told me before we began, very few people know about this aspect of insurance settlement. So can you share with us the moment or the experience that first sparked your passion and set you on this path to creating really streams of impact in your life and the lives of others?

Well, pretty easy to answer that. I was at the gym in 1993, and a gentleman that I become friends with was there. We were working out together, and he had just gotten a new job, and he was explaining it to me that he was helping people sell their life insurance policy and use that money to buy medications that weren't available in in the United States of America. At that time, the people he was talking about were people afflicted with HIV and AIDS.

Hmm.

And they could use that money to buy non-FDA-approved medicines, which later became something that actually ended the AIDS epidemic. And they were doing it using their life insurance policy. And at first glance, I thought that was the most ghoulish thing I'd ever heard of in my life. I literally said, that's disgusting and I don't understand it. I didn't say it out loud, but in my mind I thought, nah, it's not going to be for me. So as I'm driving home, I'm literally at the first stoplight. I remember like an epiphany, a light bulb went off in my head and I said, wait a minute, I'm literally helping people get the funds that they can't access otherwise to use to get that medication that could help them live longer and potentially even save their life. This is before they'd even mentioned the potential cure for HIV and AIDS. So I quickly notified my friend that I would be interested in the position. And I told my then-girlfriend, now wife, and my parents what I was doing, and the latter two thought I was insane. They said, you think no one's heard about it now? You should have seen it back then. So I began my journey in September in 1993 with another gentleman, my business partner today, Jim Nutt. We began to educate people about the value of their life insurance, in essence, from putting back putting some life back into their life insurance. Towards the end of that decade, the AIDS, as you know, there was a cocktail, protease inhibitor cocktail, where you could take multiple medications at once. And Magic Johnson would come to mind as somebody that could take these medicines. They live a perfectly normal life, much like diabetes. So the business was pretty much over 5 years after I began.

Hmm.

But yet it wasn't. There was a group out of Chicago called Viaticus, which was this subsidiary of CNA. They thought, uh, with us and others, that maybe bumping up against mortality might be the way to go to keep this business going. So, how can we help seniors sell their life insurance that, A, they don't want anymore, B, they can't afford, or C, they just actually don't need it?

Mm-hmm.

And the life insurance settlement industry began.

Mm-hmm.

With that. So really what that happens is now seniors take that decision matrix we're talking about with HIV and AIDS. It's a little different when you're older. What do you need the money for now? Do you need the life insurance? Maybe not. Maybe you've paid your home off, your kids have grown up, they're doing better than you are, for lack of a better term. So what do you really need? So today, a couple of things. They need income, as you mentioned in the introduction, or they need long-term care or better medical care going forward, whether you're going to use that money to help them age in place or to use that money to get into an assisted living facility or a long— or a situation where a nursing home, for example. If you haven't looked at your local paper or experienced it yourself, these things are very, very expensive and about 12 or 15 times more expensive than they were in 1993. So today our industry has blossomed into a mainstream financial planning tool to help people get out of a life insurance policy that many people don't even know they own it, just like they own their home. They think it's really an expense. We pay premiums, and at some point in time we may, we may decide to change the beneficiary. Or what happens to most— 9 out of every 10 life insurance policies that are ever put into force don't go to claim. They're either surrendered or they're lapsed. So, just to give you an idea, yeah, about $15 to $17 trillion depending on whose study you read.

Really? So, it doesn't go to the heirs?

Well, not if you don't pay the premium payments. Oh, I see. So, the situation is life insurance is designed to sell to what they call younger people because there's not a lot of issues with them. They're easier to underwrite and you're going to pay premiums for a long time. So, they're much more affordable when you're younger.

Right.

As you get older, right, they become more expensive.

Right.

By design. So, when you go to get life insurance as older, you'd pay more than when you're younger. And people are just sitting there going— COVID was a great way for us to understand where people's priorities lied, okay? So, they had— you could pay for your home, whether there was a mortgage or rent. You could pay for your medicine. You could pay for your food. You can pay for your electric, you can pay for your car, you can pay for your insurances for all those things. And then you had your life insurance policy. That became a luxury.

Mm-hmm.

The other stuff is a necessity. You don't need a life insurance policy if you're alive. You might need it for later, but you don't need it now. So a lot of people were lapsing and surrendering their life insurance policies during that very, very difficult time for our country, the world for that matter. So that led us to To really take the position of, listen, it's your asset, you own it, why not get some cash out of it over and above what you can get through a life insurance policy and the life insurance, if you will, how it plays out over time. So what happens? So people lapse a policy, they get nothing, or they surrender a policy, they get what is called the cash surrender value.

Mm-hmm.

With us, I'm on the board of the Life Insurance Settlement Association, We've conducted 3 surveys. We'll do a 4th here in about a month, which will figure out how many life insurance policies were sold, what was the death benefit of the life insurance policies that were sold, what was the cash surrender value of those life insurance policies, if any, and what was the settlement amount. And every year we conclude that the seller gets somewhere between 5.2 and 7.8 times more than cash surrender value. That's significant. To illustrate that, if you've got $100,000 cash surrender value out of a million-dollar life insurance policy, now you would get $500,000, just to give you some example.

Mm-hmm.

Even if it was $200,000, it's worth the exercise. Again, this is a free, non-binding appraisal, so no one has to do it. If you get an offer that exceeds your expectations, And if that makes it more valuable to you, you can keep it. It's yours. But we just want you to know that it's an asset that has value, to not just discard it like most people do because they, back to our original discussion, don't know this market, this option exists for people.

So explain to us exactly what is a life settlement and just take us through the process of how it works.

So if you were to call me up and say, I have a life insurance policy that I don't want, need, or can't afford, We would send you a state-approved application. This is a regulated activity. It's regulated in 43 of the 50 states, and the other 5 to 7 that don't have regulation either regulate a small portion of it, viatical settlements, or not at all. You would fill that application out, would allow— you would sign some releases, let us do 2 things: to collect up your current medical records and to talk to your insurance company. Once we collected those— that information up, Life Insurance Settlements, Inc., my firm, will represent you and go out to the marketplace to all the licensed provider companies. Those are the people that represent the buyers, and we'll pit them in the uncomfortable position of being in a bidding war. And what that bidding war does is it drives the price up. It's like anything, you're competing against someone else. We get that as high as we can within reason. Certainly we don't want to get going— go past the close, if you will. And we'll give that information to the either insured directly or to his or her advisor, and they will make a decision as to what they want to do next. If they decide to move forward, contracts will be drawn up, again state-approved. They'll go to the insured or their legal counsel advisor, if you will. They'll complete those questions and fill out the application again as it relates to Getting your proceeds. Escrow will be open. Monies that were promised to the client will go into that account, and then simultaneously those change forms that they'll sign in the closing package will go off to the insurance carrier. Once that change takes place, the ownership is no longer the seller, but it's in fact the buyer. The money's released to the client. In most states, they have what's called a 15-day right of rescission. This is important because it puts the onus on And the provider to provide that there's not— we're not just shoving this down someone's throat. This is something they want to get involved in, need to get involved in, are completely comfortable in getting involved in. Everybody that's related to the policy owner, beneficiaries, etc., will sign off. They'll all be in agreement. They will have ample opportunity to continue to make the premium payments on behalf of their mother, their father, their uncle, etc. If they can't, then the policy is sold. They take their money. And they're done. The policy— a new owner will take over the premium payments because they will have estimated a life expectancy based upon the current medical records. They'll all have different life expectancies, maybe as many as 7 to 10 different opinions. Whether they're right or wrong, that remains to be seen, but they're not buying one policy, they're buying hundreds, if not thousands.

So, so who is it that buys these policies?

Great question. So in the very beginning, it was individual investors because, again, no one knew about it. That included the big banks, the financial institutions. But now you're moving into institutional capital funds that are raised specifically for this alternative asset. Pension funds, for example, like this asset because It's uncorrelated. What does that mean to your listener? That means that if the stock market goes down and the world has turmoil from wars, etc., the life insurance policy death benefit stays the same, the premiums stay the same, the life expectancy stays the same. So this asset in their book of business, they can't get enough of this. Unfortunately, we don't have enough policies to sell them because again, lack of awareness, which is why I'm on your show, Allen. But it's to raise the awareness that this exists because there are investors out there that like this. You talk about a social good, they're putting money into people's pockets that they otherwise wouldn't have. You're helping the local economy, you're helping the United States government because they're not having to pay for these folks. People are getting better care instead of worse care and they're using their own money to do it. So the days of the individual investor, I wouldn't say are completely gone because there are some accredited investors out there that like to buy life insurance policies, but they're competing against institutions. And I can assure you that's not no easy feat to beat those guys and gals.

So, they're buying these in bulk and then they're reselling them?

Is that what happens? They can resell them just like any financial instrument. Absolutely. Some are a complete buy-and-hold strategy. They're holding them for the— maybe pension funds, for example. I mean, they're going to sell. A policy if someone comes says I want to buy this policy and it's twice what they book it at, sure they won't let that go. But again, they're trading amongst themselves. Well, there's one company right now that's going public in a big way, which is a group called Advocates Life. So you're seeing the financial markets become more comfortable with this. We are, like I said, a mainstream financial planning tool. This this year we were at Nalba. Uh, which is a huge organization that deals with life insurance carriers. And we were on the main stage talking about life settlements in front of their entire group, uh, because it's hard to pretend you're a fiduciary and doing in the best interest of your client when you think that not getting 5 times the cash surrender value is worse than getting 1 time.

Uh-huh.

So we just like to tell people that you have an option, let's explore it. And we'll get you the result, and you don't have to do it. You just want to, you want to have, you want to be armed with that decision, that information to make the correct decision. So a lot of the term I've heard in the last couple years that the financial advisors use is they repurpose the money. So money that would otherwise be going towards a premium payment is no longer needed because the premium payment doesn't exist. In comes a multiple of that cash surrender value. And now you're putting in force another financial instrument. I gave you an annuity as an example. So, you went from paying for something to receiving income from it. And the insurance advisor, insurance agent is incentivized because when he or she purchases that annuity, there's a commission that's earned there. It's not a commission that we participate in. That's a commission that's solely for them. In the case of an RMD, It's assets under management. The bigger money going in to purchase something else, the better it is for the overall bottom line of the organization. Yeah.

So they buy and hold these. How do they get, how do they get income from that?

When the person dies.

The seller or?

When the seller, the person, the insured passes away. That's— they are now the beneficiary, the owner and beneficiary. They get the full death benefit.

Okay.

So, to make this very clear for your audience, if everyone agrees that John Smith has a 10-year life expectancy, that's what everyone is stuck under with. So, they're going to buy the policy, they're going to give them what that's worth based upon the premiums it would take to last 10 or 12 years, and then the client gets that money. And 3 months later, the client dies. the investor would get a great return.

Yeah.

The seller should have kept the policy, but the seller can't see a crystal ball, didn't know they were going to play pickleball and die in Hilton Head Island, right? They didn't know that. Inverse, client's going to live 10 years, they buy the policy, and in 10 years he has rediscovered weightlifting, walking, exercise, eats better, lost 60 pounds, and the next thing you know, he lives 20 years. That's the downside of this investment. But as I told you before, they are not buying one policy. It's that, that bell curve we've all seen all over our lives. The life expectancy is the line that starts here and goes all the way over to here. That whole thing is the L/E. They could die then, they could die then, but the great majority of those same individuals are going to die in the middle, which is where the predicted life expectancy is. So that's the, that's the reason they buy multiple life insurance policies. If you're in this, this is not a stomach for an investor to look at 100 different cases and buy one. Yeah, I will assure you that individual will set a record the way that it works.

Yes, yes. So yeah, I can see now. So yeah, now I understand. I was thinking when you sell the policy that the policy was no longer in effect for the person selling it.

Oh no, it's paying the premium. Now, good question, and something maybe your listeners would be interested in. So when the buyer buys a life insurance policy, they will pay the premiums as efficiently as humanly possible, and the carrier will hate that. Because when you buy a universal life policy, you're always paying more than the cost of insurance. That's what's building your cash surrender value. They're not interested in cash surrender value. Matter of fact, they're going to use whatever cash is in there to just pay the premiums and then move on and pay the minimum cost of insurance. And they can reverse engineer these life insurance policies to figure out, and using shadow accounts, what they absolutely minimally need to keep the policy in force. So what would the death benefit be level, and how much do I need to pay to do that? So their cost goes way down. Most people don't know that when you buy a life insurance policy, policy and they send you a premium and tell you it's X and you don't really want to pay X, you don't have to. You can call up the carrier and say, no, I just want to pay the minimum necessary to keep the death benefit level. And they have to give that to you in the case of universal life, even a whole life policy. So, something for your listeners to pay attention to.

Yeah. So, can whole life policies— do they work the same?

They— whole life absolutely can be sold, but I will be honest with you, whole life doesn't really match up well with an investor because in my opinion, whole life is kind of a better policy, if you will. It doesn't have as many moving parts.

Right.

That can affect you negatively. So, you know, they're harder to really peg as to what it is the death benefit's going to be, etc. So we don't see that many. It's not that we can't sell them, we just don't see that many. When we do, it's very hard to place them.

Mm-hmm.

Term policies, younger people with very little or nothing wrong with them can sell their policy in today's lifestyle market because there's a couple things happening there. One, they're cheap, okay? 2, they're going to be inside of a time frame, especially when they're 60s, coming up on the conversion. Well, you can convert the policy to a permanent product. The reason that works is the investor eyes that conversion and that conversion premium, and that helps them really, in essence, manufacture a life settlement offer.

Mm-hmm.

So, the client who is very, very healthy, and they say— I'm giving an example, an extreme example. They have a $10 million term policy and they're getting rid of it. But we said, look, whoa, whoa, whoa, before you get rid of it, uh, let's go see if someone will give you something for it. So, someone says, I'll give you $75,000. And you're like, that's a lot of money for a $10 million life insurance policy, but you're 63 and healthy. Um, so what are your other options? Pay the premiums and continue to keep the policy? Possibly, but you're going to have to pay for that. You have to keep going and pay those life insurance premiums. So when you're 60, 63 years old and you're thinking about selling your life insurance policy, they say, well, who's going to take $75,000? $5,000 for it. I said, the same guy that's going to let it lapse, he's going to get zero.

Mm-hmm.

So, what happens is, is that illustration shows what the commission looks like on a conversion. And these are big numbers. So, the agent sometimes sticks around for some or all of that conversion, which he then shares with the client on top of the settlement offer. Because that is literally, uh, literally a non-regulated activity as it relates to settlement. That's an insurance activity. So there's those examples, and there's others that where you can manufacture the offer where there's really little chance the client get any money and use part of that commission to give the client some cash. So that didn't exist 10 years ago. Nobody could sell it to you. Nobody was buying a life settlement. On someone with a 15-year life expectancy, a 20-year life expectancy. When this business started, Transitions, we talked about the beginning of the 20th, at the end of the century, they said they were like looking at like what happens with a, with somebody who has a life insurance policy and they're going to try and attempt to sell it at the end of the, you know, at the end of the century. And they're thinking out loud, what are my choices? There weren't any, right? They didn't exist. So now you have an option where you think, okay, let's look at this and let's put down pencil to paper. What can I do? So our market has evolved where you couldn't sell it before. Now you can. We also can sell and give you—

Rob, you're moving out of the camera.

Oh, sorry. Retained death benefit. So they say, what is that? So retained death benefit is where you're not taking any cash or very little cash, but you do want life insurance and you don't want to pay for it, which is pretty much everyone in the world. So in this case, rather than take that million-dollar life insurance example, $100,000, you say, okay, here's $5,000. And but on top of that, we're going to put you down and record you with the carrier for $150,000 in retained death benefit, and you're going to name a beneficiary. So when you pass away 15 years later, your estate, your beneficiary gets $150,000. You've never made another premium payment for 15 years. So there are people that don't need cash, they're fine, but they would like life insurance. They certainly aren't going to be able to go out and get it is economically zero for your premium payment. So that's another innovation that's happened in our settlement market.

So what advice do you have for financial advisors or estate planners about incorporating life settlement into their clients' strategies?

Well, as always, I just want people to discuss with their clients and hopefully do a policy review, an annual review of their overall financial well-being, but essentially their life insurance policies. An agent that we do a lot of business with also, when he sits in front of his clients, says, how many other life insurance policies do you own? These are policies that were bought before he became their financial advisor. Most life insurance policies, in today's market are orphaned. The life insurance agent that sold them to him is gone.

Yeah.

So, he's able to recapture that control of those life insurance policies. And when he does the review, he can look at the 4 life insurance policies or the 5 life insurance policies and say, well, first of all, you have way too much life insurance. That's number 1. Number 2, this one is a runaway freight train in terms of premiums. You are literally putting money into this policy where your basis is almost going to equal at the end of At the end of this run to be equal to the death benefit. So those might be policies they can look to sell on the life settlement market.

Mm-hmm.

So that's really what we do, is just trying to get people to be aware of it, look for the signs, LAP notices that show up in the office. Someone should be appointed to pay attention to those and to provide the ones for people that are older to be shown to the individual in the office that's in charge of that particular client, just to be aware of it, you know, just to be armed with that. The ones that do, that understand a life settlement, an agent that does a lot of business in a calendar year might be 5 life settlements. That's a lot. I don't see people doing 20 because honest to God, that means you're probably selling really bad policies if you're really busy in the settlement market with your own book of business. So that's what I advise is just to be aware of it, to talk to your clients about it, make sure that the reasons they bought the life insurance hopefully still exist. And if they don't, then what are the new, the new reasons you own life insurance? If there aren't any, maybe those are the policies we'd look to get rid of.

So you can, you can find Rob and get his assistance at his website, which is lisettlements.com. That's L-I-S-E-T-T-L-E-M-E-N-T-S dot com. So one last question, Rob. What should policyholders or their families look at when they are looking for a reputable settlement provider?

So it's another great question. As I mentioned earlier, I'm the— on the board of directors of LISA, which is the Life Insurance Settlement Association. I'm actually the vice chair, so next year I'll be the chair. I've been on the— actually, what someone told me at the last meeting last week, that I've been on the board 21 of the 31 years it's been in existence, which is, I think, too many years, honestly. But all the members of that organization, uh, I, I continue to call like the best of breed. These are the good, good actors in the sense that Not only are they good companies with good reputations, but they're also the companies that are giving back to the industry association to help to put the rules and regulations in place to make sure that everybody's, you know, playing with this on the same board— this is the rules of the same board game, if you will. You want to check with your state in which you live in and the ownership of the policy resides with the Department of Insurance, and you can find licensed companies there, and I would take those lists and I'd match them up with members of LESA and go for that. I have competition, obviously, in what I do. I'm proud to say that a couple of those firms are made up of people that I hired and trained when I was with another company back in my earlier days, but they're all good companies, you know, and if each one says they're the greatest thing since sliced bread and Wheaties, then give them both a shot or all 3 of them a shot. You know, there's no reason not to give them involved. But there's ways to check out, you know, we're a member of the Better Business Bureau, is another good place to look for. I'll end with this. The life insurance settlement industry, as it relates to this activity, selling of life insurance policies, has zero consumer complaints in the last 5 years on a national basis. That's just not my firm, that's the entire industry. Pretty easy to understand why that is when they're getting 5 times more money than they get when they surrender. But just to sit— just put in place, there's not a lot to fear here. And again, it's free and it's non-binding to find out exactly what your policy is worth.

Yeah. Well, Rob, it's been wonderful and very, very enlightening. Concept I had never heard of. So I do appreciate you being with us to enlighten all of us today. So viewers and listeners, thank you so much for being with us again today. Please take a moment to like, share, and And also, I'd be very grateful if you would leave us a rating and a review. Until next time, live abundantly. We'll see you in the next episode.

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